Brand new updated version, click here!

Thanks for everyone's feedback in this thread! The new thread will hopefully be a step even better

Art,
Great Post/Read to the start of a solid DT thread.

I will digest this ...and add my opinions by days end,or as diff Q&A's come aboard

It is however a fact from my first hand experience making a living FROM daytraders commissions....that 95% of DT'ers LOSE money/go bust...but on the otherhand the 5% that do make a successful career from it ,can and do make a nice living

It is NOT easy nor a scam....but if anyone thinks that just because they read some books or play winning online poker... they are destined to be winning traders,they are SORELY mistaken.

It will take discipline,hardwork,pinpoint BR management,and learning from EXPERIENCE...and as always the school of hard knocks.Working with/alongside a successful daytrader/mentor can be your BEST medicine IMO

Stephen

*** one IMPORTANT note is that daytrading is VERY different than "standard trading",for many reasons that we can get into as we go along

Thanks for the post and effort. Didn't take the time to study everything you wrote but I will. I'd just like to point out that being neutral at the end of the trading day does mitigate some risks. I like the idea of effective vs. effecient.

Wow, no time to read this right now, but I look forward to reading it in the near future. Thanks!

Hey Arturius,

Awseome post and thank you! I just wanted to ask - how did you get into DT? Can you tell us a little about your market background? I'm just starting out in the market with some very simple, large cap long positions but am curious about DT and would like to know how steep the learning curve is. Do you have a financial background?

I dont want to press you for personal information, but Id be really interested to know what kind of profit margins you were pulling in the beginning and how long it took you to realise real profit from DT.

Thanks
ama

Thanks for posting all that. i think it's significant that you focused on some psychological issues.

I'm currently working on a new trading system and I've posted my ideas so far on this board. I'm only 10% (or less) done and have yet to work on entries, exits, and money management (the last 2, bar psychology, being the most important imo). I'd appreciate your opinions, suggestions and input so far: http://forums.twoplustwo.com/showthread.php?t=68213

Just like to emphasise this book from your list. I read it a few years ago and I've been working on incorporating his 'predictive moving averages' ever since. I think his system with a discretionary element is what separates the break-even system traders from the profitable strategy traders. I think he's also an honest guy and a successful trader - unlike most authors.

I'd like your opinion on trading systems. I've ran several trading systems live with some good and some not so good results, and tested many others. I focus on objective linear methods for mechanical trading systems. Do you think this is a viable strategy? My brain says no, but my testing and results disagree:- a surgeon or bus driver is needed to make discretionary decisions in their day to day work. I wouldn't trust a mechanical system to drive me around or operate on me in a hospital. Sure, they will often be able to work with unconscious competence, but it's those times when something goes wrong; the patient goes into cardiac arrest or someone jumps in front of the bus. Just like unexpected market events, not everything can be anticipated or pre-programmed. It is these "fat-tail" events that often bust out even the PhDs and the like (eg-LTCM),, or slowly endure the degradation their mechanical systems face over time.

2 questions:

1 - Do you think a purely objective mechanical system can make money consistently over time (eg-Richard Dennis' turtle trading methology of the 1980s) with no discretionary or subjective trader input other than parameter settings and system design?

2- Do you believe that any concept can be traded profitably given intelligent exits and position sizing? (eg-financial astrology, sunspot activity.....random trade entry). I remember reading somewhere about how Tom Basso designed a profitable trading system using random entry as an exercise to show how exits and position sizing are the most important part of a trading system.

I suppose I'm at the consciously incompetent trader level right now, but I've never had the desire to day trade (I hold from days to years, depending on the system). I'd appreciate if you could give a brief overview of what your trading methodology is. I know some traders don't like to disclose this. I've spent years studying and designing trading systems and I'm sure you have too. I'm more interested in your broad trading concept and how you define your edge.

what are the startup costs for this like?

how much of a "bankroll" would someone need to start trading futures?

AX, I don't want to hijack your thread, but I think your first point is basically an argument against a straw man.

I think many proponents of market efficiency would agree that competent day traders can beat a buy and hold strategy. In order to do so, however, they have to spend time workign at it (like a job) as well as aquire many valuable skills. So one's decision whether or not to become a day trader should not be based on whether they can beat the market. Rather it should be based on whether they will end up with more money day trading than they would taking up some other career (e.g. investment banking).

very good post, ty

Nice point Econophile

This is the point that interests me. I'm looking forward to your input.

btw,

Nice work, AX

Art,

Great post...ty for the effort. Have already ordered Chick Goslin's book(thru your link, ofcourse) .... and would like to know what order of reading those books you'd suggest for a beginner.

Thanks.

good thread

i have tons of free time and i feel like ive been close to learning this stuff for a few months now but i haven't gone ahead yet.

in poker doing serious analysis basically requires the math skills a 5th grader has + strong, logical thinking. i have a strong mathematically inclined mind but i didn't go to college and high school was 5 years ago so i probably have the math skills of a 9th grader right now. will that seriously hold me back if i try and make some money trading

My uncle was a big commodities trader way back in the 1980s, and I remember when I was a kid I used to talk about stocks, resources, trying to understand that the 'futures' market didn't actually mean some market going on in the future

As I got older I never really became to interested in stocks, I always thought the fundamental stuff was kind of boring, so I never really got into it. Later I went to university to get my finance degree, I started playing online poker on the small stakes. I ended up doing an assignment on behavioral finance, I read some books about these 'day traders' on the floor, and I was intrigued about the concept of 'reading' the market in order to make a profit. I read Bernstein and his summary of the history of the markets, found it intensely interesting how far we've come. The more I read, the more I found about the pitfalls people faced. I saw the flaws in the media, how they explained situations. The more I learned about how the market worked, the more I wanted to know. I ended up getting a job with a bank here in Australia, although it wasn't anything like floor trading, it did involve some accounting style work with risk management.

Being a stereotypical generation Y, I ended up quitting that job to search for something more. My poker skills were growing, and I was able to make a good living just based on those skills. I also managed to meet a highly successful day trader on a forum, in exchange for teaching him poker, he taught me some of the finer points of trading. This stuff was extremely valuable, it was all ideas and thoughts about how to exploit pricing differences, how to use context to identify ideas, and how price movements work. He opened me to how to see institutional traders, how they move, and how to exploit it.

I started up with an account of $15000, I had a big drawdown of about $8000 at the beginning, but I stuck to my guns and managed to hammer down a much better system. I kept learning, kept my ear to the street, talked with my mentor, worked towards a better system. It takes a LONG time to get comfortable with the markets. There's no way I could survive the last 3 months without the skills I built over the last 3 years. The volatility would have crushed me, but now days I'm smart enough to use it. I'm always working on new ideas, a new play, trying to perfect my craft.

As for profit margins, its like saying how many women you've slept with, the number is either too low and people think you suck, or its too high and people think its a brag. The Van Tharp books I posted go into money win rates in a lot more depth then I ever could. I think the best way to figure it out is to see it for yourself. My estimates about how much I could make from day 1 held pretty true, although it took a long time to do it consistently!


I'm not a mechanical trader, but take a look at Trading Digest from my blog links, he is and I've talked to him a few a times. He's a smart guy and is very disciplined in his system creation. Take a look at his posts. Mech trading has always interested me, that'll have to wait till I get better at java though

1. Absolutely. But you still need an edge. Looking for simple moving average crosses is not an edge. Your system has to be smarter then just looking for when your indicator does something 'meaningful'. Curve fitting when back testing mech trading systems is a big problem, and difficult to overcome sometimes. If I were designing a system, I'd be looking for odd relationships that occur in different market environments. At the moment, most portfolio managers have been moving away from consumer discretionary stocks to consumer staples. Its obvious its a flight from risk. I'm sure using some weird indicators, you could create an interestingly profitable system. Every trader and his dog have come up with simple systems using cross overs, but they still need to reflect the reality of how people are trading the market.

2. For sure. Exits are so so difficult to identify as a discretionary trader. The best way is to think of possible price outcomes, and never be caught off guard. Entries are highly overrated, but think of it this way. Entry is where you identify the edges, sort of like preflop play. I know calling with a pocket pair for whatever stack is a good play. Exits are postflop, its your bread and butter. You have to stick to your entry ideas, but also have to balls to go through with your play, and still know when to close your position.

I'm not a huge fan of fib numbers, elliot wave, astrology or whatever, but some guys are and do well from it, so I have no idea. Once again, you have to believe it to trade it. I don't believe in it, so even if I wanted too, I could never pull it off. I think a lot of people just do these as a magical remedy, even if they dont believe it. Good way to lose money imo.

Well, I spend about $400 a month on software. As for a starting bankroll, it depends a lot on the security you're trading, and the system you're losing. I probably wouldn't start less then 20k if I was trading futures, just dipping in one contract at first.

For sure. This **** is hard, and its more of an art then math. And yes, in terms of money optimisation, a decision must be made regarding skill sets. One thing though, learning about day trading and different market strategies is a great way to diversify your knowledge. I talked to a guy who heads a board for a large mutual fund here in Australia. He had no idea about day trading or any of the concepts I talked about. He was clueless, and I have no doubt if he had some elementary knowledge about stuff like short covering etc, he'd be much better at his job. My opinion, of course. There's a lot of pro day traders who don't really make that much, maybe like 80k a year or something, some even less.

The order I posted is probably the best. If I were doing it over, I'd just order one at a time, read, contemplate, then when I need more stimulation, order another till I get down the list

It depends on how you trade, but no. Probability is probably a minimum requirement. All the books I posted are extremely math light. If you're trading pairs or something though, you probably need some higher math skills.

Hello Fog,

The point I am trying to make is that daytrading is technically... "intraday" trading where your positions are opened/closed in the same trading day.Many of the premier ID trading programs(one of them we used was RealTickPro)...which allowed you to open positions at 7:30 am (EST)...and must be closed by 8:00pm(EST)...there are now stocks that trade 24hrs on the ECNS such as ARCA/INET...but they are EXTREMELY illiquid,and your prints/execution price will never be in your favor,unless some other sucker is willing to dump/buy some shares at a severe discount to the last closing price

These accounts however,require a minimum deposit of $25k ...and that equity MUST be maintained at all times.The account gives you 4x intraday buying power,which would be $100k each day assuming you were flat(no overnight positions).If you decided to hold X amount of ABC stock....you were forced to liquidate down to the standard 2x overnight margin which many of you are familiar with a most brokerages.We will discuss this issue later also

The pluses :

1.NO interest% on this ID buying power assuming you CLOSED out all positions each day

2.The 4x leverage..gave you some ample ability to make decent/sizable trades..which on an intra-day basis are commonly called "scalping" for small gains from the long/short side...but could amount to handsome profits if managed correctly

3.Being able to trade in the pre/post market after news/EPS release/SEC issues/biotech-drug approval/non-approval...giving you a heads up on "the public" for the most part

The minus side:

1.The forced end of day liquidations ..many times would make you exit trades ,that "might" be profitable 1,2,3+ days/weeks down the road...where you have a realized LOSS on a stock that would be a profitable trade if not for the required EOD liquidation..if you were capable of holding your leveraged postion

2.Concentrated positions/certain unavailable shorts were monitored by the BD...so averaging UP/DOWN to get out of a losing trade in ONE particular stock was much tougher by days end if the market didnt TURN your way ....they were closely watched if all your equity was in concentrated ONE stock

3.Losses in LEVERAGED stocks are always amplified,and for the most part mis-understood by new traders that were not taught or familiar with DT'ing margin

3.If for ANY reason ....you overbought/sold a position...and recieved a MARGIN CALL.....and it was promptly due the next business day NO,IF ands or BUTS.If you violated this rule you had ONE strike(as the clearing house called it)...second one and your account was liquidated and suspended for a period of X days......Third strike...and the account was CLOSED...and you could not open an account under your name,SS#,...period

4.As in POKER....most daytraders had the same TILT factor within them,and they would chase losses into BIGGER losses...sometimes/MOSTIMES into huge losses

5.The most catastrophic problem IMO...was stocks that were halted,SEC investigations,news pending good or bad,etc....as when the stock opened GAP up/down to a point where being so highly leveraged...your account could be worthless(actually having ZERO/or negative equity in it)...and where the BD which ultimately is at risk....would FORCE liquidation before you could trade your way out of the postion at anytime


The KEY to being a successful daytrader(and I could "maybe could count 10 people" in all my years that I would let them trade my money)....was discipline,patience,uncanny BR management,and the ability to walk away EACH day no matter what happened unscathed

We can get into the next short-term style of trading which is called SWING TRADING...which can be anywhere from a few minutes...to a few days/weeks after we get through this Part ONE of daytrading

Feel free to ask any particular Q's
Stephen

***Thanks Art for starting this thread that I said I would attempt.....as I actually didnt know where to start and can be quit lazy in my old age.You did an AWESOME job in your opening statement

Haha thanks Stephen. And to think, we used to fight

This guide is in no way complete, I welcome anyone posting anymore information that I've missed out on. I'm not super familiar with US laws like the 25k minimum day trading stock rule etc, so you guys feel free to do any write ups.

Nah Art...it was all in fun

One of the questions I have ALWAYS wanted ask the members of BFI,is where they reside?

My posts usually imply/relate to US residents.....but I would enjoy hearing everyone opinions,and obviously the laws/rules of that particular country that I am not familiar with

Stephen

Just a few points. The various types of trading you lay out are a very narrow spectrum of what's in use. There are hundreds, if not thousands, of different ways to daytrade. People should try to keep an open mind as to the possibilities.

As to "efficient markets", the only people that will tell you that are naive, novices, or have their own reasons for keeping you in the dark. Stocks are manipulated every day for various reasons. Jeff Cooper, a respected trader, prognosticator, and author in the daytrading game is fond of quoting his father "Stocks don't move, they are moved". I find these stocks to be the easiest to play. Either jump on for the ride or wait till he's done, and fade the move as it goes back the other way.

As for Etrade being a lousy platform, it is just fine for many people. The commissions are high, but if you aren't very active the costs are offset by the lack of any software or quote fees. I'm talking about their Power Etrade Pro platform, not the website. I would say if you're new to daytrading and don't want to trade systems, it's a good way to go. Especially if you're short-stacked, so to speak, and don't have $25k for a daytrading account. You can still make 3 daytrades a week, and the Etrade route is a good way to go while you build up your account.

Absolutely. My bread and butter system of trading is so bizzare to even most traders that there's no way I could post it and help anyone. It has nothing to do with 'momentum', 'candlesticks', 'head and shoulder patterns', but everything to do with data I've sorted myself. Anything is possible, I hope I emphaised that. Some people like a starting point though, and I found these books to be ideal as a starting point to the theory. Going to the next level is all about you.

Yeah, no sane person tries to argue efficient markets nowdays. I thought I'd include that, because hell, its a frequently asked question :P

You don't need as much as for stocks. The commissions are low and there's no $25k account requirement. There are lots of mini contracts and low-margin contracts to trade. Charts are essential though, and I haven't traded futures for a long time, so I don't know if the "free" charting that you get with Etrade, IB, etc are adequate. So you might have to pay $150 or so per month for a service like Esignal.

Tradestation I think is only $60 per month, and has some neat backtesting features. That said, its scripting isn't as sexy as esignal, and I think esignal has a lot more data, but don't quote me.

Trading EOD I'm sure E*Trade is fine, but there's no way in hell I'd ever use anything but a dedicated feed for intraday trading. Its amazing the quote differences too between different platforms. Esignal has always be seemingly lagless to me, but using my broker's feed with ninjatrader, its like playing an online multiplayer with 300ms as opposed to 100ms; still playable, but damn, those candlesticks jerk around.

"Stocks don't move, they are moved".

pig4bill,

That quote...is SOOOOO true

SF

One of the BEST daytrading platforms is RealTick:

http://www.realtick.com/

I have seen 100's of platforms that my firms were pitched/reco'd throughout the years....and although VERY costly...it is by far the most advanced software/order entry system IMO for pure daytrading. From its split-second executions,filtering systems,charts,point and click features,links to news/various accounts,etc

I still use it from each of my home offices....and after years of using it....there are features within the continuously updated software that I STILL havnt tried or realized yet

Stephen

what is your opinion on books written by Robert Kiyosaki? His book are the only onces I have read yet, but will start reading some you suggested