A friend of mine was a pretty active day trader during the dot com days, he used to call it "the only gambling legal in all 50 states" and talked about earnings in units of "Boxters" [1]. Unlike the person in the article he had not invested in real estate or other holdings and so his net worth changed dramatically during the 2000 recession. I always felt it was like a teen who drives recklessly until they almost die in an accident and then can't bring themselves to drive above the speed limit after that.
I always felt that being single and without dependents gave him an edge. I was never comfortable not having a really really safe hedge as a stop loss. Of course it could be I was just too chicken to "go big" :-)
[1] The Boxter from Porche was going for about $50,000 each at the time.
Because, see, the 200 day average line crosses the 50 day average line here, and just yesterday we already had two dead cat bounces, so it must mean a market head fake, so it can't possibly fall again today.
(Human beings are great at finding patterns that aren't really there)
Also in a recession a lot of trades slow down dramatically, because firms will be conservative. If not a lot of trades are happening, there isn't much to make money on. In addition to this, the strategies that the day traders relied on don't work as well, since the signals will change as people start trading differently.
I think another problem is that bear markets tend to be briefer and more erratic than bull markets, making your odds worse. The serial, consistent returns being long in bull market aren't as consistent as being short in a bear market. In bear markets it may just be best to sit it out.
Even day traders have their capital in some instrument, be it cash, real estate, stocks etc. It's not unlikely that in addition to day trading, this trader invested a large amount of money into the stock market (and indeed, we have been told he did not invest in real estate).
Most day traders close all their positions at the end of each trading day, so as not to be exposed to overnight gap risk. (A "gap" is when the opening price in the morning is not equal to the previous day's closing price. These occur when relevant news arrives after the 4pm ET close.) So if he was really a day trader, he would have been in cash.
It's possible he had been spoiled by the big bull market and didn't know how to trade successfully in a bear market. Different tactics are required.
In short term, day trading is effectively a zero sum game. During a recession the stocks crashed in a really short period hence for any to gain, some has to lose money.
I would really like an honest explination of what it's like to be a Day Trader these days? No--B.S.--no chart mumbo jumbo; the truth of what your day is really like, and how you make money competing with the Big Boys(who obviously have insider information), and the unknow number of HFT'ers?
I have know two Day traders in my life. One blew his inheritance on day trading, and is currently living in his van. The other, I met in a bar. He wouldn't give out much information, except he was always bragging about this office electrical grid is on the same main feeder that supplies San Quentin. I haven't seen him in years.
So yes, I would love to know the truth about this line of work, from someone who has actually done it? I don't expect details, or any incriminating information. I see so many people loosing money on Stocktwits daily? I all looks like gambling to me--so much so, If I got into the game, I would seriously consider being a contradiction investor.
Be aware that the stock market is a game of "dumb money" (casual investors) and "smart money" (hedge fund managers, HFT groups, bots watching info feeds, and 'insiders').
How does one determine the 'true' value of a share of stock? — what is the current perceived market value of that stock and how are anticipated influences going to change that perceived market value?
I don't trade as I believe it's a bit rigged in favor of HFT & hedge funds with deep insider sources. [1] [2]
I'd recommend investing in tangible business assets and infastructure. Do something real, make real things happen.
I'm not a day trader, but I do trade, and I think I know enough about it that I can sketch an answer for you.
You have to learn to manage your own psychology, so that you can stay calm under stress and minimize errors. This is far easier said than done. In particular, you have to overcome certain human instincts we have regarding risk. People prefer a small certain gain to the possibility of a much larger gain in the future; conversely, we will accept the possibility of a large loss in the future in order to avoid a small but certain loss now. Both of these attitudes are ruinous for traders.
Most people have to have a system -- perhaps, multiple systems. A system is a set of rules for buying and selling that give you a statistical edge over the market. Here is an example system. This is only an example -- it will not actually make money. Do not try to trade it! You take two moving averages over two different time frames -- say, the last 15 minutes and the last hour. When the shorter-term average goes above the longer-term average, you buy, and when it goes below the longer-term average, you sell. Systems get much more complex than this, but perhaps this will give you the idea.
A completed trade gives you a gain or loss proportional to the amount of money you placed at risk (let's ignore commissions and slippage for now -- they're usually minor). The amount at risk is normally controlled using stop orders, which close the trade automatically if the price trades below a specified level (or above a specified level, for short positions). Call the amount at risk, R. Then the result of each trade can be characterized as the gain divided by R; this is called an R-multiple. A trading system, when used repeatedly, generates a distribution of R-multiples, which can be characterized by a histogram; a typical system generates a lot of trades between -1R and 0, a smaller number between 0 and 1R, a still smaller number between 1R and 2R, etc. It's possible for systems to have win rates (the ratio of winning trades to losing trades) less than 50%, but still be profitable because they generate enough multi-R gains.
Once you have a profitable system, you then have to decide how much to risk on each trade. The more risk you take, the larger your potential profit, but also the greater your chance of a significant drawdown if your system generates a string of losing trades -- as it will from time to time. Risking between .5% and 2% of capital on each trade seems to be the usual range AFAIK. If that doesn't sound like much, consider that a day trader may make 4 or 5 completed trades per day. If their system has a .5R expectancy (average R-multiple) and they risk 1% per trade on 4 trades, their expected gain on the day is 2%. With compounding, and given 20 trading days in a month, such a trader can make almost 50% on their capital per month. This level of success is very unusual, but not unheard-of.
And if making 4 or 5 trades a day sounds like you would spend a lot of time just sitting around watching the markets and waiting for the right moment to strike, then you have the right idea :-)
BTW, the above is a very very brief summary of Van Tharp's book Trade Your Way to Financial Freedom [0], which I highly recommend to anyone interested.
It is possible to have more losing trades than winning trades and still come out ahead. It comes down to how quickly you cut losers and how disciplined you are at letting winners run (not taking profit too early). Risk management is critical to not losing your shirt in any market.
Conversely, it is possible to have more winning trades than losing trades and still lose money overall.
The last I had heard he bought a house outside of Medford OR and was living, in his terms, "simply". My assumption was that he had walked away with enough money to buy a house outright where the taxes weren't outrageous and is just living on the residuals at a much more down to earth level.
CIS’s first big score came on Dec. 8, 2005, when someone at Mizuho Securities Co. made a costly typing mistake. Rather than selling a single share of a small recruiting company called J-Com Co. for 610,000 yen, Mizuho offered 610,000 shares for 1 yen each.
Wow. Such an error could easily have been detected by software before the order went out. Does a professional trading company really not do any order sanity checking at all? I bet they do now, ha :-)
It was noted at both Mizuho and the exchange by actual humans, all of whom made the decision that they lacked personal authority to overrule the trader. The report by the regulator later was frosting when noting this, AFAIK.
Wow, again! I don't know what their system looks like, but it doesn't seem to me that it should require a lot of authority to bounce the trade back to the trader for a second confirmation -- or maybe send it to a second trader in case the first one has a hangover or something.
I had to stop and think about what actually happens when someone posts an order like that, well outside the current bid/ask. What price(s) does it get filled at? Apparently -- if it works the same in Japan as here -- each bid already in the book would execute at its existing price, despite the fact that the asking price on the new order is far below that. You might think that they would execute at the average of the two prices, but that doesn't seem to be the case, from what I've managed to dig up. An example like this suggests to me that an even better choice would be the geometric mean. But the difference would matter only when someone had screwed up very badly.
Yup, orders that are placed well outside the bid/ask just fill every order in the order book until they are filled. It's commonly called sweeping the market and happens on 1-2 ticks (price levels) around the best bid/ask pretty commonly throughout the day depending on the product. Limit order books are actually really fun things to model and the rules around different exchanges books are quite neat.
The problem with disallowing your trader from ripping through a lot of the levels of an order book is that it can be a risk reducing move and what you intend to do sometimes. This trade is a clear fat finger but there are times when you will want to sweep the book to get hedged.
For instance, let's say your desk just got slammed with a ton of risk on an OTC (over the counter) option trade. You can immediately alleviate a lot of that risk (while paying through the nose) by selling 2000 contracts or 5 price levels of the ES (SP500 future). You can immediately place that order and get it filled and be hedged. If there were multiple points of human intervention required then you might lose a substantial amount of money. 2k contracts on the ES is $25,000 a tick. If word leaks that people are going to need to start hedging big then it could easily move 10 or 20 ticks away from you while waiting for your risk management team to approve your trade as not a fat finger.
Generally it's cheaper to just fire error prone traders. Heh, and anyone that is about to execute a 2k contract option trade generally has their hedge order queued up and ready to send to the market as soon as they hear the other side agree to their price.
Ah, very interesting. I had wondered how option writers managed their risk. I wonder how often this is the cause of the spikes I see on charts.
If word leaks that people are going to need to start hedging big then it could easily move 10 or 20 ticks away from you while waiting for your risk management team to approve your trade as not a fat finger.
That's why I would expect it to be done in software. Yes, I understand that software can be buggy, and hard-and-fast rules sometimes need to be bent, but I would still expect it to be cheaper overall. But I haven't actually worked in the business, so this is just my $.02 :-)
Heh it's options writers or buyers (just options market makers in general). A lot of stuff is electronically traded but there are still some very large orders with huge deltas that are put up on telephone calls.
And yeah it makes sense to have an extra prompt pop up if it's an order over X contracts or Y ticks from the market. And I've seen a lot of systems set up like that.
A lot of times traders will just punch the "OK" box and do their trade though.
That's of course if traders are manually hedging their portfolio/trade. A lot of times they just set their portfolio to auto-hedge based on certain parameters (ie at Z deltas or we've moved C ticks in a time period).
On the NYSE erroneous trades like that can be called back. This just shows you that there aren't "fat finger" trade protections built-in to all exchanges.
These days Japanese exchanges have stricter order validation, e.g. orders with price outside a certain range are rejected outright, and if actual trading takes the stock price to (say) 75% of its opening price, the trading for that symbol is halted for the day.
So the Mizuho blunder couldn't happen again today.
This can be done in a variety of ways, but it's unfortunately not usually free. 1) A trading terminal such as Bloomberg 2) get API access to subscribe to the exchange feeds or other data vendor feeds.
Usually, this is out of reach for casual traders. I've seen one exchange publish order book snapshots every 5 minutes on their website, but this data is hardly useful for frequently traded instruments if your strategy is based on the order book dynamic.
For those unfamiliar with the Yen: it's worth about 2 orders of magnitude less than the major Western currencies. As a rule of thumb, insert a decimal point 2 digits from the right to make figures make more sense.
A couple of important thing to note about the Japanese taxation system for stock capital gains: (1) Japan has no concept of short term vs long term capital gains for stocks. The tax rate is a flat 20% no matter how long you have held the security, and (2) from about 2003-2014, said rate was only 10%. These two factors make personal trading in Japan a potentially much more lucrative affair than in the United States [1].
>Another day trader, Takashi Kotegawa, who’s known as BNF, made more than 2 billion yen, according to a Bloomberg News report at the time. Efforts to reach Kotegawa were unsuccessful, and it isn’t clear whether he still trades.
IIRC "BNF" now owns a prominent building in Akihabara (he likely still trades). I forgot the details of the reasoning, but I remember reading something about the purchase about 5 years ago on 2chan.
Hm, call me a Luddite or a communist or whatever, but i fail to see how this type of pursuit, broadly speaking, is of any benefit at all to society at large. In fact, i would argue (while simultaneously admitting that i am not an expert / economist, so i am open to comments) that trading this way is dubious to say the least. All i mean is, where is this guy's massive profit coming from? Surely to a certain degree there must be a law of conservation of cash? Is it really only coming from other traders like him, but who in that instance happened to make a bad decision? In other words, i would say it would perhaps not be that bad if the pool of cash from which such traders were fishing were entirely made up of inlay by other such traders, such as would be the case at a casino at a poker table... What i'm trying to enunciate is a vague uneasiness that somehow, making so much cash without contributing anything to society seems... Unfortunate, to say the least? Isn't there something useful somebody like that could do, instead of amassing a fortune by "gaming the market"?
I have nowhere near enough knowledge on the subject to suggest a workable method of regulation or anything like that, but i really wonder how something that boils down to somebody gaming the market (as somebody else said, the only gambling which is legal in all states) to the tune of millions is anything but detrimental.
It has always been a fantasy of mine that a boatload of 25 brokers would be shipwrecked and struggle to an island from which there could be no rescue. Faced with developing an economy that would maximize their consumption and pleasure, would they, I wonder assign 20 of their number to produce food, clothing, shelter, etc., while setting 5 to trading options endlessly on the future output of the 20?
Forgive my ignorance of stock trading. For stocks that do not give dividends, then stock has no inherent value EXCEPT what a buyer thinks they can sell it for later (bigger fool theory)?
Not quite. The stock IS the company. If the company makes profit, or is perceived to have other value (assets, knowhow, etc.), then the stock is priced according to those parameters.
Simple example; company issues 100 shares and makes $1000 profit per year. If you could buy those 100 shares for $1 each, you'd basically own 100% of a company that makes $1000 per year cash profits for $100. Good deal. Usually too good in fact, and that's why this stock would not be priced at $1 per share for long.
I always felt that being single and without dependents gave him an edge. I was never comfortable not having a really really safe hedge as a stop loss. Of course it could be I was just too chicken to "go big" :-)
[1] The Boxter from Porche was going for about $50,000 each at the time.