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.
