Just like you I swing trade and don't day trade so I am on your side, but I think your logic against compounding with day trading is a little weak. Unless a day trader keeps taking money out, and assuming he is net positive, his compounding is as valid as ours. The high cost of day trading on the other hand is valid because of large accumulation of commissions with a large number of trades. Regards,
I found this in that yellow book called 'Day Trading For Dummies'. I guess my argument about day trading was a bit off kilter. A day trader that is profitable that reinvests their profits is compounding after you take into account the round trip trading costs. Nothing against day trading - I think day trading is great in the right hands, I put on some intra-day or night trades here & there although mostly I swing trade. Just that so many novices latch onto it by default and have widly unrealistic expectations. Investors double their $ every 10 years going long on the S&P500 based on long term averages - they are getting the full impact of compounding. Compounding interest Compound interest is a simple concept: Every time you get a return, that return goes into your account. You keep earning a return on it, which increases your account size some more. You keep earning a return on your return, and pretty soon, the numbers get to be pretty big. In order to benefit from that compounding, many traders add their profits back into their accounts and keep trading them, in order to build account size. Although day traders earn little to no interest, the basic principle holds: By returning profits to the trading account to generate even more profits, the account should grow over time. This practice of keeping profits in the account to trade makes a lot of sense for smaller traders who want to build their accounts and take more significant positions over time.
We must consider the context of those statements. I am convinced those statements were a reference to his attempt at daytrading in the brokerage houses. He could not successfully daytrade them because of lagging prices quotes and along with perhaps other reasons. But he COULD daytrade the bucket shops and often had to resort to going back to the bucket shops to get a stake up to learn how to trend trade in the brokerage houses. I believe if he were alive today, in todays world of fast electronic quotes, he would be daytrading and not trend trading. Or he may would do both. His first passion was daytrading in the bucket shops. He knew that game well and could beat it over and over and over again. If they would not have learn't him and kicked him out, refusing to do business with him, he probally would have never gone the route of the brokerages and longer term trading.
This notion that Livermore the trend trader would convert to day trading if he was alive today makes no sense - he was clearly outspoken against short term trading, he berates it over and over again - calling it a fools game over and over. He speaks of the hundreds he used to make on quick trades became millions when he learned to sit and let his winners run, that is the lesson of Livermore. Livrmore would buy leadership stocks that rose above $100 saying they often go to $200, than $300, etc. - that is trend trading.
Again context. In such statements he was referring to daytrading via regular brokerage firms of the day (imo). He was not successful doing so. He was greatly successful short term daytrading in the bucket shops. He would be a wiz at it in todays markets. He could not make it work in the normal brokerage world of his day so obviousley he was against short term daytrading in the the brokerage environment of his day hence he was quite vocal about. BUT put him in a bucket shop...ANY BUCKET shop and he would daytrade the snot out of them and make them wish that he had not frequented their establishment. Todays electronic quotes and speed of trading would suit well to his bucket shop strategies hence i say he would be a daytrader "par excellence" in todays world.
And two of the best traders on ET arguing over whether a man that died a long time ago would day trade today? I don't understand why that is so important.
Agree. I still wonder if he'd be as successful in the modern day. Some of the big guys who are still alive today all say most of their money was made back when the market trended better. They say these days, it trends smaller, and less frequently.