Is Day Trading Dead?

[steve46 12]

Hello

 

Hard to change old habits. I find I am still up and drumming my fingers on the table even though it is Saturday.

 

My thought is that "retail" day trading (where the participants are not professionals) is a cyclical pursuit. In the previous decade with the assistance of technology, markets became accessible to everyone. Your average Joe saw the possibility for easy money and jumped on board. The economy happened to be expanding, and happily some folks found themselves in the right place at the right time...called the "SOES bandits"..... a few enterprising folks took advantage of the fact that at that time, markets were slow to update the spread. They exploited that inefficiency and made money...it was only a matter of time before those opportunities disappeared....I remember the days when it seemed every dentist and insurance agent had an account. One might say that the Forex markets are in a similar place today in terms of development. Today the US market and economy is in a recession and the demographic has changed. The average retail trader is older, wiser and unfortunately poorer person, who may have absorbed loses in the market downturn and is now more concerned with trying to re-acquire lost savings.. Many of them have already tried daytrading and found that they simply couldn't overcome expenses. I imagine things will swing back in the other direction in time....

Edited December 11, 2010 by steve46

[TheHardWorkingGuy 10]

How can day trading be dead when we still have a lot of hypes about 'getting rich quickly'. There is more news about trading now than there was 4 - 10 years ago. The 'HF Traders still need ignorant people trading so they can scoop up all the funds.

 

Trading is largely zero sum. It remains speculative and some loosers have to contribute to the pool of funds in which the winners will make their profits from.

 

Negatively programmed machines have now been coded to consume all available pips. More work is been done by computers than are being done by humans. The 'extra digits' came more into life when these machine trading had to exploit the markets all the more.

 

Truth is that day trading can never die cause the market still produces liquidity enough for both scalpers and swing traders. If you know the game, you won't mind any mishaps and you will focus on how to maximize or at best maintain your gains.

 

If even you want to use computer robot trading, there are clean ways by which that can be done. I go for the clean way and don't mind the mess.

 

 

 

To your trading success.

Aden

[BrianE 10]

Success at Day Trading is now determined the same as it always was.

1. Fast, accurate moves in and out of the market.

2. Management of risk and reward.

3. Discipline to follow the previous two points.

[btrader 10]

Success at Day Trading is now determined the same as it always was.

1. Fast, accurate moves in and out of the market.

2. Management of risk and reward.

3. Discipline to follow the previous two points.

 

 

Brian,

 

To add to your post.

Number 3 Discipline or another way to say it Trade Psychology is where most traders fail.

You can have a method that gives you an edge, understand risk management, but if you don't get your emotions under control you will not be successful as a trader. The key is to trade like a machine, take each and every trade per your method/trade plan and trade with neutral emotion.

[mslk 10]

here is a great rebuttal of the article points from the guy at T3Live

 

The Best in the Business Exited the Business:

The author highlights the Schonfeld letter to its traders, calling it evidence that the ‘best in the business’ have moved away from day trading. Actually, the letter from Schonfeld says the exact opposite. From the Schonfeld letter: “Sadly, however, we are re-thinking the notion that less skilled and less successful traders can be here forever without producing sufficiently for themselves and the firm.” I agree with that statement, that less skilled traders should probably move on from the business in its current state. Schonfeld was not saying that the company is leaving the day trading space, but that there was no room for mediocrity in its ranks. Day trading has its ebbs and flows, and right now, in general terms, it has been more difficult for less skilled individuals to make consistent money. This will lead to a retrenchment within the industry, and the traders that survive will be those that adapt and become more sophisticated.

 

The Insurmountable Challenges:

In regards to computer trading, black boxes have made day trading more difficult, especially for those strategies relying on the level 2. I only use the level 2 to identify areas of concentration I can potentially get out of a trade that goes against me, and that has continued to work for me. In terms of firms being exposed to a greater deal of risk due to SEC v. Tuco, all I will is that, more than ever, firms need to be diligent. You need to educate your traders in regards to risk management and get rid of delusions of grandeur that plague new traders’ minds. As a firm you need to exercise tighter risk controls. Poor market structure is an issue, but that is an issue for everyone. You could hold a company for a year and watch the price appreciate, and then watch all those gains get washed out due to a flash crash, for example.

 

The Scary Shape-Shifting from Trading Firms to Training Firms:

I think that when you explore getting a formal trading or market education, you need to look closely at what you’re buying. The day trading industry is full of shady characters who make unrealistic promises of instant success and easy profits. That is your first red flag. Someone who over promises success or guarantees anything should not be taken seriously. At this point, almost all firms out there that make those promises or operate under that false premise are out of business, plain and simple.

 

Success as a day trader is not probable and it is not easy. It takes a certain kind of person to have success in the stock market, and even then it takes a great deal of time to develop the ‘feel’ that drives the success of the top traders in the industry. At T3, I periodically teach a trading course along with Steve Levay that I wholeheartedly believe in. That being said, it is not for everyone; our style of trading is not for everyone. We try to teach all of the concepts that make us successful and consistent in the markets, and then try to guide students through the execution process. Trading is a performance skill, and you learn by doing. Nothing happens quickly, if at all, and you have to be realistic with yourself. ‘Day-trading’ has a certain connotation that is unfair; there are still certain intraday strategies that work.

 

The Industry and Its Future:

My general response to the questions raised in this section is that you have to be in the right stocks at the right time. You can’t come in and trade AAPL, GOOG, BIDU and GS everyday and hope to gain any sort of edge. You have to do your homework, find emerging sectors, stocks with news that drives volatility, and look for opportunities, based on technical analysis, to jump on board those stocks early in keeping with the prevailing trend.

• Speed Trading and Order Flow: Pure speed trading, certainly, is dead. That would have been a more accurate article. Due to computers, spreads have tightened and it is no longer feasible to try and capture them. Tell me something I don’t know.
  
• Order-Flow Traders: In the same vein, strategies based completely on order flow and the level 2 box no longer work because computers are better than you at your own game. They are in and out of trades in a shorter time frame than it takes the synapses in your eye to communicate what you see to your brain. Thanks for the insights, groundbreaking stuff again. Next.
  
• Relative Strength/Weakness: I agree, the cave-man style use of relative strength/weakness principles does not work. Computers have erased any ‘lag’ time that existed. The only way I look at stocks in the same sector as another is based on volatility and volume. Generally, if a solar stock, for example, sees a volume spike, others in the sector will see more action, too. We recently found REE after noticing MCP in the rare earth space, and while we did not trade them off each other in a primitive sense, we traded each alone using momentum and technical principles.
  
• Intermarket Price Discrepancies: Same idea, don’t try to do something that computers are better than you at doing, which is exploiting short term ‘inefficiencies’. The markets are manipulated by computers, don’t fall victim to that manipulation. Trade stocks where you have an edge, and use good money management to hold onto profits when they come.
  
• Technical Analysis: I’m glad the author at least acknowledges technical analysis as the “last man standing” because it will always have a place in the markets, in the same way that psychology will always have its place it medicine. TA is based on the effects on price of human emotion, so as long as humans still have a place in the market it should still be a part of any investment strategy. And if humans no longer have any place in the market, then every type of investing is dead; the markets could be utter, random chaos. That is not to say you buy every bull flag or short every overbought reading. TA is a timing mechanism, and a way to identify stocks that will have heightened volatility and, thus, opportunity to make money intraday. I always trade with the overall trend, and use technical analysis to quantify risk. TA is not a be-all end-all, but nor is any strategy. It is simply another tool, and it will always have significance because of human nature.
  

 

-mslk

[Kojak 10]

Day trading is far from being dead. It has just evolved to a stage where the majority of the opportunities are being seized by the more sophisticated trader. Sophistication is not just High Frequency Trading. The type of computing power we have now both in terms of hardware and software, makes it possible now, for the even the smaller trader to seize the emerging opportunities that earlier on was almost purely in the arena of the larger firms.

 

Many of these successful opportunities are just not revealed. I deal with a Algo Platform developer who also trade their Algos. The CEO was a former student of mine , revealed that their most "mature" and most profitable strategies are not for public usage. That is the reality.

 

On the issue of "Is Day Trading Dead" - Actually a case can be made for the converse : That trading on larger time frames have very poor Alphas. Meaning that they cannot beat the market by much -on an average. The reason I would attribute to is the emerging regime of higher volatility, across all time frames. The roots of this increased volatility lies in accelerating technological change and the faster dissemination of information, both of which will only continue to accelerate. Driving up volatility even higher.

 

Because of this increased volatility, the longer time frame strategies of portfolio diversification and capturing the secular growth trend inherent in any economy just may not work.On the latter point,my assertion is that cycles are getting shorter and could quite easily get caught the wrong point of the cycle. Like if you had invested in Japan in the 80's. Almost the same analogy would apply for portfolio diversification.

 

In fact I can point quite few research studies that show that while most of the traditional imperfections (like the Friday effect etc) have been arbitraged away, imperfections persists on the smaller time frames.It is my contention that the tools for seizing the opportunities in higher volatility exists.Thought is not for everyone to seize, it is there. Inshallah

 

Jose Kollamkulam,

Chennai, India

 

Day Trading is far from dead. The day trading dies, is the day we've got bigger things to worry about, like and end of the world as we know it.

 

Trading did use to be a lot easier, but at the same time, I wouldn't say its got harder providing that you're day trading properly. What has happened is that basically it's come to a point where if you're going to day trade, you have no choice but to learn the mechanics of trading now, and to do it properly. As I mentioned in a another thread, the majoirty of the market is always looking for trends, even tho the market spends 80% of the time in a range. So essentially you have lots people who have taught themselves how to be chart analysts inadvertly thinking that they're trading. Over the past couple of years, they were able to get away with it because of the monster moves and trends, which gave a lot of people a false sense of security. Most of them people are gone now, and you can tell that from even from how quite the forums have got. In the prop letter, he stated that the days of someone being able to grind out a $50k USD a year living are over and that they're going to cut these 50k a year traders. Fair enough in my opinion, everything is relative, and if you're only earning 50k USD a year from trading, then you're not exactly an amazing trader.

 

If you're 'trading' and not analysing, then it's just a case of adapting to the conditions.

 

What is happening is the same as what happened on Eurex around 2006. Lots of people made good money when it was easy and were not talented enough to adapt to new conditions. The only differences is that back then they were blaming the flipper. Same stuff just another cycle, people blaming everyone/everything except for themselves.

[AuctionMarket_Trader 10]

Day trading is dead ... you don't stand a chance of making it against the algorithms that are out there. They included analysis of order in the book, emotional triggers and pattern recognitions as well as prediction, i really think day trading is dead (not practical anymore)

[SpearPointTrader 10]

Day trading is dead ... you don't stand a chance of making it against the algorithms that are out there. They included analysis of order in the book, emotional triggers and pattern recognitions as well as prediction, i really think day trading is dead (not practical anymore)

 

I don't know about other markets, but in the Futures markets, day trading is alive and well. In fact, I feel your are much safer, and much more likely to keep your account from being wiped out by some unexpected price movement while you sleep.

 

All I do is day trade. For the life of me, I cannot understand why people would even try to hold for more than a few hours. It's insane as far as i am concerned.

 

In the end, I still feel day traders make more money, for no other reason then they are out and on the sidelines when the markets move against them more often than not.

Edited November 1, 2011 by SpearPointTrader

[AuctionMarket_Trader 10]

I don't know about other markets, but in the Futures markets, day trading is alive and well. in fact, I feel yo are much safer, and much more likely to keep you account from being wiped out by some unexpected price movement while you sleep.

 

All I do is day trade. For the life of me, I cannot understand why people would even try to hold for more than a few hours. It's insane as far as i am concerned.

 

In the end, I still feel day traders make more money, for no other reason then they are out and on the sidelines when the markets move against them more often than not.

 

That doesn't mean that you are profitable or that you will make it....

[SpearPointTrader 10]

That doesn't mean that you are profitable or that you will make it....

 

Profitability is just a matter of winning more than you loose, and keeping your losses smaller than your wins; which is the same no matter what the time frame.

 

Also, Day traders often cover the same price range multiple times, where as trenders only get it once.

[AuctionMarket_Trader 10]

Profitability is just a matter of winning more than you loose, and keeping your losses smaller than your wins; which is the same no matter what the time frame.

 

Also, Day traders often cover the same price range multiple times, where as trenders only get it once.

 

The smaller the time frame the harder it is .... Ie sec to min to hours to days for the reasons stated above day trading is not a profitable strategy or practical any longer the competition on that time frame is too difficult and not viable any longer

[SpearPointTrader 10]

The smaller the time frame the harder it is .... Ie sec to min to hours to days for the reasons stated above day trading is not a profitable strategy or practical any longer the competition on that time frame is too difficult and not viable any longer

 

I have not found that at all. In fact, I have found the use of shorter time frames to be a good filter to weed out false signals often seen in the larger time frames. It's just a matter of knowing how to read your charts and understanding what they are telling you.

 

Even *If* I wanted to trade longer term, I would still be entering off my 3 minute chart.

[AuctionMarket_Trader 10]

what can I say?... Best of luck

[Blaiserboy 10]

Day trading may change from year to year, there may be different approaches used, my thinking is that it will be alive and well for a long time into the future.

[izzahmu 10]

its dead if you are trying to learn from books, that stuff doesn't work, and I am not sure if it ever worked. You need to move to automation and start inventing your own indicators, otherwise its dead!

[Fudomyo 10]

here is a great rebuttal of the article points from the guy at T3Live

 

 

 

-mslk

 

I agree with this rebuttal. I would add that the markets are tougher since the 2008 crash for a number of reasons. The market has been thinner, and without the larger block traders counterbalancing moves, price action has become more erratic. (yes, this is partially due to HST as well) but with so many participants sidelined or heavily invested in bonds or black swan funds this year, trading conditions have not been optimal.

 

Also, many traders become good at one thing during a long market phase where conditions remained constant. When conditions changed, many traders couldn't adapt.

 

This has been true since the inception of the markets. Livermore was a great plunger but lost money in accumulation phases or rallies. Rally traders have had a tough go at it since the crash. A lot of people in general could make money in an easy trending market, but now profitability requires a higher level of skill.

 

Personally, my profits are down this year, but abiding to the basic rules of capital preservation are necessary when conditions are choppy. The wait time between trades has increased, but there are still plenty of good trades to be had. Just not as many until market conditions improve again. Some people don't understand this.

 

For instance, ML Global. Corzine was playing by an old rulebook in a treacherous market. Leveraging 40% in the currencies market during a period of heavy Central Bank intervention was suicidal. On the flipside you had someone like Bill Gross, who bet wrong on inflation and missed the Bond move, but still managed to squeak out a 1% profit overall for PIMCO.

He was criticized for making a bad bet, but the firm didn't take a loss.

 

The markets are cyclical. When conditions improve, many of the lazy people and cowboys (who should have never been trading in the first place) will be gone, but sophisticated traders who have honed their edge through this time will reap the rewards.

 

It's been a great opportunity and challenge for anyone willing to step up their game.

[rdial54 10]

Day trading is not dead and seems it will always be here. Patience and discipline works in day trading and anything else you endeavor to do. Pick a few stocks to follow and use multiple time frames to evaluate them. Don't trade until you see a proper support level. Stick to your plan and have an exit plan before you make the trade. Don't be greedy. Let the chart and the market be your guide not an arbitrary profit target. You can't be right all the time but with reasonable risk management and strict discipline you can do it.

[Blaiserboy 10]

Day Trading is far from dead....!! People are learning new and profitable techniques as the market changes. I am not so sure that robots will replace day traders, there are few robots available that are consistently profitable. daveM

[steve46 12]

reading through the thread, clearly some folks do understand that as markets move through time they evolve.....we have more international participants, more automated execution, and a much more prounounced effect from economic news just to name a few things....

 

When I came into the business we started by executing for the customer and using that information to help us in our trading...although we did not have complete information, we had enough to help us to identify a primary trend. When we left the business we lost that advantage and had to learn a different game...fortunately we also learned how to accurately "characterize a market"...and once you get that, you always have a way to adapt to the markets on any time frame.

 

Trading on the intraday time frame offers challenges but like any other pursuit it can be done provded you approach it with the proper tools...

 

Characterize the market

Adopt the appropriate risk management program for your account

Learn to react to economic news and

Take the trades your system offers, in a disciplined manner

 

This last element is important...many retail traders think that they can simply pick and choose and make a lot of money...you can't....once you have a significant mathematical advantage you need to take the trades in order to see the full expression of your edge...to the extent that you pick & choose, you randomize the trades and that usually means you lose...most decent systems have similar results...you win a little, lose a little, then you catch the occasional runner. Much of the pros success relates to staying out of trouble and knowing when to be aggressive....

 

As you can see "we're not in Kansas anymore toto"....it isn't simple by any means...so it you have the resources to do it for yourself great.....if not I suggest you find a good skilled teacher and learn the game the way most of us did....

 

Good luck

Steve

Edited July 21, 2012 by steve46

[rdial54 10]

This is a very good overview of key day trading issues and ideas. Thank you for sharing with us.

[Patuca 13]

Trading is not dead and it was never easier. Read ‘Reminiscences of a Stock Operator’ by Jesse Livermore...it was written about 100 years ago and yet is as relevant today as it was when it was first published...

 

It can be summarised neatly and succinctly with his very wise quote:

 

Anyone here who thinks they have to learn something new because the market has changed is fooling themselves. There is nothing new, at all. Learn to trade and the skill will last a lifetime.

so no adaptation have to be made for HFT and algo trading?

[Patuca 13]

Look at a chart in precomputers times. Say from the 50's. Compare it with a chart in the present time where algo and HFT take place. Basically you will still see trends, pullbacks, and trading ranges. They were tradeable then and they still are. Strategically, they can all be traded. Tactically, entries..exits..stop losses may have to be adjusted.

[philipwade 10]

A good article on changing market scenario, although I think it would be too early to comment on this! Still day trading is vastly utilized by lot of people.

[Blaiserboy 10]

I certainly think that there will always be daytraders..... As long as markets trend there will be traders nicking a bit for themselves every day and every night.

 

I use a couple robots on a regular basis and they earn a bit for me......... no fun in robots except when developing them.

 

To me, trading is fun, exciting, interesting and also problematic-demanding.

 

As you will see in the various threads in this forum, some very intelligent and talented people are daytrading all the time.

 

It will continue.

[Eddie Z 10]

I dont think Day trading is dead. I feel it has evolved over the years and has become automated. Even if people use robots, nobody will ever be able to replace the human insight and understanding that we can gain by watching the markets every day. As we all know the market is a pool of human emotions and reactions at any given moment. Day trading is the best way to truly learn how to control your emotions and how to react at any given trading moment.