Short Term Trading

Warning:  Today's post has nothing to do with the current markets so if that's why you're here, best to click off.  Now for the rest of us...

From time to time I get asked when I'm out about day trading, swing trading or some other form of short term trading.  Usually it's from somebody I know who's made some money flipping some stock they're familiar with or perhaps they think they've discovered some magic options trading strategy.  What they really are after is whether this could be a significant income stream for them.  Rarely am I asked whether they could quit their current jobs and go off and be a trader.  The people I know are too old for that., meaning they've already either made it in their current jobs or have no interest in doing nothing but staring at a trading screen all day.  That's for the under forty and mostly male crowd.  At any rate when I'm asked something along these lines,  my stock answer is "Perhaps you could do it but it's very hard".  

Now I don't really think that 99.5% of us can do this on a regular basis.  That is I don't think most people have a back tested, rules based strategy that they will strictly adhere to day in a day out.  Instead most will fly by the seat of their paints or most have either read about or purchased over the internet some trading strategy and inevitably they will fail.  I arbitrarily assign a .5% possibility that somebody can potentially make a go of it this way.  Somebody has to be at the right tail of the bell curve.  Somebody has to be Lebron James.  But statistically the odds are so small that I think most people are nuts to try it.  These odds become smaller still for the individual who thinks they can quit a day job and make up the income trading.  

Here's an excellent article written by a former day trader that sums up many of the reasons why this is so.  I'll leave you with these excerpts:

 ".....I do not know of ONE single scalper or trader with a time horizon less than a week who started in the 90s and is still in the game today. Not one. Perhaps more curiously, the professionals stock pickers who purport to be able to beat all the obstacles one faces when trading on a short-term time frame are also gone. Some are in jail. Some are bankrupt. Others have simply vanished to a life making ham & cheese omelettes for Russian tourists in coastal cities across the Eastern U.S....."

The landscape today? High frequency trading, quantitative zombie machines that are designed to take everything you learned from your favorite trading books and shove them into your rectum until your backside is confused for the reopening of Borders. They will take out your stops with precision. Your traditional means for entering a trade via breakout, crossover or whatever else you want has a coin flips chance of being retraced almost immediately. Your ability to execute into an opportunity will get front run by systems that are designed not waste a single millisecond. Faster than you can click buy at Etrade....."

....Your competition are hedge funds. Your competition are large institutional trading desks that breed future hedge fund managers. Your competition is global, sophisticated and hungry. I mean H-U-N-G-R-Y for returns. As a short-term retail trader, you are a high school football player, without a helmet, in the middle of an NFL game."