I would have to agree with the orginal poster and NoDoji. When I first started trading (Jan 2009), I made about $30k in the first 2 months. I thought I was unstoppable after I made $14k in one day ! Thats still been the most I've ever made in on day. Then I got owned by buying BAC and crying uncle when it sank to $3 (which is when I decided to read up on trading). Funny thing is, I know at least 6 ppl who started trading in 2009 and made between $35k - $60k and they were just buying randomly because some stock dropped. Of course, they got lucky and bought after March 2009, so one could have thrown a dart at almost anything and made money. I have a friend who is stuck in AA (he bought at $15.51 in Jan 2010) and his sole strategy is this: buy a blue chip when it goes down, and simply hold it until it goes up and sell when he's made like 5-15%. He figures they'll all go back up eventually. Of course if he picks the wrong stock one time, he's fucked since he's dropping $70k into one stock. I do find it funny that he's made more than probably most (including me so far) and he has no clue what he's doing. Ignorance is bliss to some degree if you have a long term time horizon. Day trading with his strategy would be suicide obviously.
Day trading is a psychologically heavy game. I find good traders generate a "feel" for the market. This "feel" is based off hours and hours of experience. I think people who keep it simple can fail, and people who over-analyze can fail. You must adapt with the market. It changes, and you change with it. What works today, might not work tomorrow. Even traders with established systems, either simple or complex, should always be studying the markets, looking for new ways to profit. Traders also need will. If you're not completely fascinated, I doubt you'll get too far. Don't blame the game, blame the player. Quite frankly, people who fail do not have the mental capacity to hold this profession, or they were unprepared / misguided. Not everyone was meant to be rich and successful... People drop out of med school, people fail as traders. Imagine entering a tournament of any kind. The majority of the other players are professionals, they are used to the pressure, know what to expect. Take table tennis for instance. EVERYONE thinks they are good at table tennis. They beat all their friends, maybe even another guy who swears he is good. This player enters a table tennis tournament and finishes last because he doesn't even play correctly, he doesn't have the REAL experience to grasp the game as it is played professionally. To answer the question, "Why do noobs make money?" 1. It was an easy move to spot 2. Luck 3. They are on the right side of a major rally 4. They were tipped off A noob might make money, but he is not going to outperform the pros. That's my take on this...
Yea but what if he bought C or FRE, and hoped for them to go back up? FRE is worth $0 and who knows when C will return to the teen days.. these were in the Dow just a couple of years ago BTW. He has a stupid strategy. He's down 50% now. The opportunity cost + cost of capital is immense. Also not playing on his side is that the USD has bottomed and equity stocks will remain to face downwards pressure. Also you 'Americans' are poor when you come to other countries now. Pathetic. The USD/CAD used to be 1.50. It's been flirting with parity for most of '09-10. Most of your money is spend on education. It's costing me $1,500/semester.. because the GOVT' pays for it. That's what 15% consumer goods tax does for you.
I think this is one of the keys of why <i>many</i> new traders make money at the beginning: they simply don't close trades until they show a profit. It may be a small profit, particularly in relation to the heat they took on the trade, but their line of reasoning goes like this: if without knowing anything I'm doing this well, as soon as I learn a couple of tricks of the trade I'm gonna make a killing (also consider that most people start trading when the market is hot - up or down, but hot, where "every" long/short ends up a winner if you hold it). Then one of those trades in which they average down keeps going down and down until they can't take the pain any more. If they're lucky they blow up their account and quit trading altogether. If they're not and only lose, say 20% of their account they become traumatized by losses and look for a way to never again suffer any significant loss, which is when they discover the stop-loss and its evil cousin the trailing stop-loss. Since most of the time they have been taking small profits (and now are even quicker to take them), they use unrealistically small stops (more so given their lack of skill and their tendency to do momentum trades) and get stopped out over and over again only to get the impression that the market always turns at their stops, which leads them to - instead of better execution - wider stops, etc., etc.
I remember one of my colleague did so, he lost even more money. He had a losing strategy, so he decided to enter in a trade completely opposite, instead of buy - sell and sell - buy. It didn't work out!
I guess Gubinec's choice of words shows the lack of mental flexibilty (which is essencial in trading) more than anything else.
noobs typically: -add to losing trades -take quick profits -ride losses -prefer to only sell when the trade is showing a gain. So using this strategy the noob is often able to make a string of winning trades. It is called manufacturing a winning streak and is a popular betting method at the casino. At this point the noob might increase his size, as it is logical to do when one is a proven winning trader. Sometime in the next few trades, a trade goes negative and never turns around until the puke point is reached, and all the accumulated gains are lost and then some. The next step is the discovery of stop loss and loss cutting. This brings the noob to the next faze: Moving from losing trade to losing trade do to the use of stop loss orders. While this prevents another blowout, the noob is now stuck moving from losing trade to losing trade, with hardly a winner to be found.
lets not forget, the biggest influx of noobs to trading and the markets occurs when its the easiest. At the end of a big bull run or something. Winnins is easy then -- but all of a sudden our new noob winners find themselves left holding the bag. Thats why most "noobs" do well when they get in the market. They start in an easy market.