Aug

14

Most people assume that a daytrader is a guy losing his $10,000 account in CMGI, who will have to go back to moving refrigerators for a living. Sadly, that is not too far from the truth for a guy running his own money, given time, using any investment approach.Another reason for the negative reaction is jealousy. It makes people green with envy to imagine a guy taking down mid six figures while working four hours a day in his pajamas from home.

But the reaction that I respect, is the more experienced traders who recognize that there are size limits to daytrading and that if one wants to play in the big leagues one has to develop a higher level of sophistication, no matter how successful one may be as a daytrader. These same experienced souls recognize how easy it is for a guy running his own money to destabilize when the market changes and crash and burn.

My professor, who was at Solly when it was Solly and was the fourth guy at LTCM, looked at my resume and my sheets and told me that I had the worst resume he had ever seen (after 10 years of daytrading) and that I needed to get beyond daytrading because if I was not careful I would be 40 when cash equities went away and then I would be a greeter at Wal-Mart.

Of course the flip side is that for many of the investment/trading guys out there who are not doing something as 'easy' as daytrading to make a living, their 'sophistication' is just a crutch to hide behind as they will under perform indexing year after year.

The bottom line is that dollars are green and if you have got the nerve to do it on your own and can do it, then you can write your own ticket and live the way you want to live. As has been well discussed on the list, money doesn't buy happiness once one can pay the bills, so it is mostly the intellectual challenge that should push any successful daytrader into the 'big leagues.'

Nat Stewart comments:

In the 1990s and 2000s some on the sidelines missed opportunities and were afraid to take a chance. They often now manifest their impotence in hatred for those who shoot for a dream and are willing to assume risk. The day trader phenomenon of the late nineties created a mass mob of little Abelsons, waiting for the fall and relishing the reports of young upstarts getting their comeuppance.

Yishen Kuik adds:

In the late 1990s thousands of otherwise unremarkable young people were making a great deal of money as day traders. Public knowledge of this was fairly widespread — perhaps you recall the television ad where stock trading Junior lands his helicopter on the front lawn of the family home, as Dad looks on bewildered.

It was about upsetting the perceived status quo, young upstarts making fortunes doing apparently nothing too strenuous while 'the rest of us' were left behind, looking stodgy and foolish. When the NASDAQ collapse came and a lot of these mo-mo fortunes were destroyed, the moment of schadenfreude was too delicious for the general public to resist. The public's smug satisfaction that "we were right after all" led to the comforting notion that those who day trade are indeed fools who will soon lose all their money.

I think therefore that the public's enmity towards daytrading is partially explained by the need to protect its own fragile ego — it hurts too much to believe that someone sitting at home in his pajamas can draw down 7 or 8 times the median wage while Joe Public sits in his cubicle cursing out the boss.

Craig Cuyler mentions:

I came across some guys that had a fund in Switzerland about a year ago they were posting plus ten percent returns per month scalping the Dax and Dax options. They developed some software for the Deutsche bourse and had a data pipe line that was a few seconds faster than the rest of the market. The were buying or selling bullets and making five to ten ticks all day on many many trades. It lasted about six months until their method was discovered. Articles on the Flipper have also appeared over the past year, and it is the same story, they have a very short lifespan. There are some other very short term strategies that I have seen for trading futures based on NYSE tick, that work quite well. I just think that, for the reasons I have given, the equities are very risky, and perhaps you bleed to death slowly until rampant markets like pre 2000 come along again.


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