All true but you forgot the critical ingredient to your formula-- lots and lots of the raw material called MONEY. Without that first, forget about short term trading in the traditional sense or really any sense Beyond being a hobby. surf
Mr. Surf, for crying out loud man, that is self-evident. Like how the YM short position from 21087 with 10 contracts would have required $40K+ to maintain on each day. How has the rolling been going? This is a daytrading thread, not a monthly roll thread. Yes? How is daytrading without money a hobby, while position trading without money is NOT a hobby?
I think learning to day trade on your own as a retail trader is pretty close to impossible for most people. The biggest obstacle is that you ain't going to find the information you need to be a succesful trader publicly available. Well, some of it might, but it sure as hell ain't spelled out in the open and you need to be very clever in order to deduce and learn everything you need to know. It's a long journey...
Comparing daytrading to the proficiency in surgery,musicians,martial arts, language, etc.. where the focus is just on mastery/repetition of knowledge is off base/inaccurate. Daytrading is an open system competition environment - the difficulty in maintaining a profitable trading edge grows as the participants in the market become more experienced. Just because you may be good at trading now is no guarantee you will keep your edge in the future. Compare that to the master surgeon,linguist, or musician whom once they've mastered their specialty, will have that proficiency locked in for their career. The Olympics and martial arts are closer to daytrading as they are also open systems, but they still deal with things that are memorized through training - all the known sports and combat skills- so it just breaks down between equals as a matter of greater mastery and physical prowess under set rules and controlled environments. Daytrading puts you in competition with the best of the best from the start- you can't look to "master" trading in some "junior" league and work your way up. You are put in with a group of people attempting to solve a different "complex puzzle" each day, where puzzles may be similar but never identical to the prior ones before it. No amount of memorization of any past hardwired solutions will help you. You must know how to analyze the puzzle in real time with more general solution skills instead of having and known memorized solutions lined up in advance. The puzzles become more complex and difficult as the people who play increase their skill/effort in trying to solve these puzzles. You are going against not just other people, but highly specialized computer systems programmed to take advantage of any inefficiencies. It is a self limiter that only consistently rewards the top players. Each person really has to look inside themselves and come up with their own unique way of solving the puzzle if they truly want sustained exceptional success- as any spelled out trading technique will be neutralized as everyone incorporates that knowledge. There is a reason why 90% of people who attempt to be consistently successful at daytrading fail- it goes beyond just rote mastery of a learned skill. You don't have to be among the best in medicine,music, linguistics, etc... to be able to make a good living from that skill, but in trading, you do. The level of difficulty goes beyond what most people could ever anticipate.
Excellent post---u also dealing with a chaotic system-- unlike most sciences or really any rule based profession.
What i meant by the post is that in order to be succesful ( to a meaningful degree) in the markets you need far more capital than most people realize.
About 5% make it as day traders which is the same success rate as learning anything else that requires a great deal of time & dedication, such as: learning to play a musical instrument well, get fit, learn a foreign language, get good with an extreme sport, or launch a business. That being said I think for the average trader they are better off swing or trend/positional trading - many day traders eventually shift into swing trading. The Johnson study on active traders stated: "the most successful trader in the group had an average holding period of 47 days, and did not day trade." The market spends a lot of its time in tightening consolidations - followed by periods of breakouts. Swing trading is following the natural rhythm of the market. You're in for the breakouts and outs during the consolidations that erode most traders accounts, your commissions are much lower, and you don't need to be glued to your monitor, keeps you a lot more chilled out, frees your time to enjoy every day - you don't have to be watching a live market since you can put in your orders in the evening & weekends.
Thanks for the information. Yet, the Johnson study involved only 30 random accounts from only one retail trading firm. Most day traders lost money (we all know that). The interesting thing about the study is what I think is the primary reason why "traders" take a crack at day trading... A small percentage of the accounts were profitable and had a the probability of risk to ruin was low...they tended to hold their position +40 days. There are more significant studies by "grad students" across the U.S. and Europe. They had a much larger statistical analysis size for many more years...those that review hundreds of thousands of accounts by many different discount brokerage accounts... Both day traders AND swing traders under-performed the markets during the years tested...mainly due to the costs of trading (e.g. commissions, fees). The largest variable in the performance was the commission rates. Thus, day traders spent more money to trade in comparison to swing traders. Therefore, the difference between day traders and swing traders was just the "cost of doing business"...not actual trade performance. Most of these surveys or studies were done late 80's, 90's and very few have been done since 2000. Yet, once in awhile...someone would illegally post information online at a forum about a particular broker (I've seen posted information since 2000 on different brokers including here once at Elitetrader.com). The statistics was very close to each other but day traders were spending LESS money...lowering their risk to ruin versus those of the 80's and 90's. I saw some information (I think it was Bloomberg) about the number of "traders" (it didn't say day traders, swing traders...just traders) have declined greatly since the 2008 - 2009 financial fiasco. I wonder if "traders" are more concerned about the business aspects of trading via watching their costs of doing business much better than most of those surveyed in the 80's and 90's that were surveyed ? There was a more larger study by congress in relationship to the Atlanta shootings late 90's. The congressional hearings involved statistics of "ALL" of the U.S. brokerages of that time...stats closely similar to the other surveys that had a much smaller sample size. Yet, congress pinned the poor results of "traders" on the brokerage fees, abuse of leverage and pressure tactics to trade more...the latter implies there's a psychological variable involved to why day traders do poorly. Congress even called it "predatory practices" by brokerage firms. Interesting...these were "prop firms" but those words were not used during the congressional hearings. Instead, they used the words "day trading firms". I mention this distinction because I wonder now about the other statistics of the 80's and 90's. Some too used the words "day trading firms" but how many were day trading firms that cater to retail traders versus day traders employed at prop firms ? Thus, it would seem that most traders at Elitetrader.com are "not" working at a prop firm. They are trading from some home office at home...most likely they should be more concerned about the business aspects of trading and taxes ? Are there any statistics or surveys out there that specifically compare all groups of day trading such as retail accounts versus prop firms versus other types of day trading accounts ? If there were, I would suspect there would be different statistics for each group of day traders and the commission costs or cost of doing business would obviously have a key impact on profit/loss levels. We just need to be careful about these statistics that use the words "day trading firms" because like the congressional meetings...they too used those words when in reality they were talking about a specific group of day traders at proprietary trading firms. Yet, the one thing that stands out to me. Only a few are profitable in these surveys. I think that's why many get involved with "trading"...they want to be that few or think they can. Personally, I wish more traders were profitable and I wish better statistics are maintained and ongoing (continuous) especially with the technology we have today versus 80's and 90's. Also, regardless if its day trading or swing trading...the only advantage that swing trading has over the other via all the stats I've seen...the cost of doing business. Therefore, if any type of trader can control their costs of doing business...it should in theory reduce their chance of ruin. The fact is this...some "traders" are suitable for day trading and not suitable for swing trading or vice versa. I mention this only because I've seen people talk about the psychological impact of day trading vs. swing trading. Also, I've seen discussions at many different forums about the impact on the family for those that have family...day trading vs. swing trading. Unfortunately, there aren't any statistics or surveys on such. Traders today in comparison to the 80's and 90's...more seem to have another job or sometimes refer to as a "real job". Therefore, today there's a better understanding about cost of doing business...less chance to risk of ruin ? Yet, I think this is more about the at home retail trader than the prop trader. Things to think about.