Day Trading!!!

Day-trading is very risky and the odds are stacked against the amateur day-trader. Over 80% of day-traders in stocks lose money in a bull market, a much higher percentage in a sideways or bear market. The on-line day-trading companies were devastated by the 2000/2001 bear market. The futures market is even more risky. The very few of those who enter the futures market with less than $15,000 remain in the market for a full year.

Even without trading on margin, a trader automatically loses money on every trade because of commissions & fees; bid/ask price-spread and a small gouge from the broker. A high volume of trading in which the trader is right on half the trade volume automatically means a loss.

There is a great temptation to buy when there is a sudden run-up in price and sell when there is a sudden fall. A sudden fall is more frequently sudden and rises more frequently gradual, in my opinion. Generally this is a bad policy. In fact, there are many contrarians who sell on run-ups and buy on run-downs and advise strongly against adding to a position that is currently proving profitable.

My most conservative form of day trading is to buy on a low where the market has sold-off strongly for a couple of days and has been relatively flat for a couple of hours. We prefer to do this when we have enough margins to hold the position overnight, if necessary (not day-trading, literally, but a good time for entering a position).

Less conservatively, we will look for what we expect will what we call a monotonic-up day, i.e. a day when the price movement is primarily upward with little downward excursion. This may be a Monday after a period of deep selling or the Friday after American Thanksgiving. Although it is normally bad practice to add to a profitable position, it can be conservative if we feel confident of forecast because my risk only increases in increments and if we are right we are still limiting loss with stops. For example, we would enter the market with an S&P 500 contract on the open (9:30am), with a 4-point or 6-point stop (allowing for the fact that the first half-hour of trading is the most volatile). If the market moves up 2 or 3 points we will buy another contract and raise my stop. 10 o'clock is a very volatile time, so if we can get beyond then we would narrow stop to 3 points and continue the process. If we have patience to last-out the day we may attempt to do so, but normally the afternoons can be saggy & risky, so it is most prudent to sell-out earlier even though the last hour or half-hour often shows a final up-surge.

My most aggressive day-trading is on the day of the FOMC meetings. Typically the market rises in the morning of those meetings. At the time of the 2:15 pm announcement of the interest rate move (and bias) the market is usually very volatile. It is usually most prudent to say on the sidelines for the first 15 minutes, at least. By 3 pm a trend is usually established that generally lasts at least until 3:45 pm. Buying or selling to follow that trend can be very profitable. Of course, if you are heavily margined and an earthquake hits you can be in deep trouble if you are not watching CNBC and not ready to exit the position at a moment's notice.

We try to day-trade only rarely, when we believe the opportunity is exceptional. Oddly, we normally take a position in the futures market where we have ample margin to cover the most extreme of market movement buy-&-hold or sell & hold not what you normally see in futures traders.

When we do day-trade futures indices we find it essential to continually monitor charts of the indexes (to follow trends) and the numbers themselves.