This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
After another string of 1R losses, the most recent today in Continental Airlines, Inc. (NYSE: CAL), I’m finally giving up on daytrading. Even though daytrading fits my personality and my desired risk management style, it doesn’t fit my capitalization level or my current skillset. True, with Zecco I have no commissions, but with less than $25K I have the patter daytrader rules to deal with, which limit me to 3 daytrades every 5 days. This does not allow expectancy or a high Risk:Reward style to play out, and my profitability is completely a function of my win/loss rate, which is about 30/70 over the last few months. With the PDT restrictions, I’m not really daytrading anyway, since I can’t take a lot of positions (a lot to me being maybe 3-4 per day). If my trading skills were exceptional, I could trade consistently enough to pull this off under these limitations, but they’re not and I can’t.
When I started trading, commissions killed my expectancy, which was about -0.5R per trade. After the advent of Zecco, I thought I’d be able to overcome the commission drag I had from my old broker, and I did. But my situation hasn’t changed, as the PDT get in the way. Now I’m either at zero expectancy or slightly negative depending on how “lucky” I get with my 3 trades per week. Babak’s international option would help with the PDT rules, but then I’d have very large commission drag for my small account size. Even if I could get the commissions lowered, or trade higher priced stocks with a per-share structure, I still don’t have the time to watch all day, which is another of my problems.
My pipedream was to double my tiny account over some period of a year or three, to prove to myself that I can trade profitably. Then I would put more money on the line and go from there, possibly even full-time. I haven’t achieved anywhere near those results, and I’m net down since I started two years ago. So a combination of undercapitalization and lack of skill are forcing me to accept reality: I can’t daytrade anymore. Without better skills, getting more money won’t solve my problems. I’ll just lose it 1R at a time instead of 1r at a time like I do today. Seriously, I must just suck at the markets. I always hear people say that “it’s easy to make money paper trading, then you trade for real and lose money”, but I even lose money paper trading!
So what now? I have to move up to the daily timeframe and set my stops and risk level such that getting stopped out in the same day is highly unlikely. My daytrades will then become a safety net rather than my intended trade vehicle. Ideally, I shouldn’t ever have to use the daytrades anymore. If I can get swing trading skills such that I can grow my account, I can then consider rounding up more capital to risk. My NR7 scan results have been disappointing, so I think I’ll head in a different direction, but I’m not sure where.
I hope to return to daytrading someday, but for now I sadly bid it farewell.
sorry to hear that…good luck…we will see u back soon enough
With a small account you are going to have a very hard time, no matter what you trade. Until you double your account a couple times, your options will be limited. Either swing trade stocks, or day trade other vehicles such as international stocks, some futures contracts or forex.
The market will always be here for you when you’re ready. Hopefully you find a way to work through these difficulties.
I’ve experiment with nr7 also sometime ago. I’ve read about this method in Farley’s book. Unfortunately this doesnt work for me also.
So I return to my first method i’ve get to know from books – Alex Elder’s Triple Screen method. On weekly chart i scan pullbacks to value zone (between ema13 and (ema26 or ema50), ema13>ema26>ema50>100), look that there aren’t divergency between MACD/FI13 and price. Then on daily chart look for entry. On daily, briefly look to channels, s/r, macd, FI2, volume, candles. I employ very little indicators, as Elder says “five bullets to a clip”. I ussually enter not when price hits above yesterday high, but about 1% lower yesterday close. Now I even don’t look to intraday chart. I know where I want to enter and where is my stop. I feel preety comfortable with this method. btw, i do my scans on russel1000.
maybe it sounds like old fashioned method, but this works. that’s my way.
anyway, good luck for you. rest a bit, and you’ll find your new way!
Don’t quit now, it takes many hard years to be good at day trading unless you are the exception. There is nothing easy about trading or anything worth doing. How long did it take you to become an engineer? Either way best of luck to you!!
Daytrading will always be here when you are ready. BTW, one trade per day is sufficient. I make more money when I limit myself to one good trade per day.
zoomie: daytraders actually make money?
I’m not quitting trading or blogging, but I am going to change timeframes and stay out of intraday for the foreseeable future. Thanks for the kind sentiments, everybody.
well, you’ll have more time to think about which trades to take, which might help. And, you shouldn’t have to watch the trade constantly, which might help. It’s hard to daytrade when distracted. When I was practicing, prior to quitting my job, I arranged to have a few mornings off each week.
The average learning curve for trading is three years. You’re well on your way Prospectus. Swing trading is probably a good choice to perfect your trading skills. All the best to you!
The truth is that there are nor great day traders alive. John Train wrote a number of books about this years ago. He wrote about “Money Masters”. He never found a truely great day trader.
What are the qualifications to be “great”?
jack: so the multi-millionaires trading in the pit are what? long term investors?
[...] Here’s my trade from today in Continental Airlines, Inc. (NYSE: CAL) that was the final straw in my daytrading struggle: [...]
@Richard – “What are the qualifications to be “great”?”
Great traders have balls of steel, meaning they get massively leveraged with no hedges and they hold through huge drawdowns but still miraculously come out alive. Day traders just don’t have the cajones to be great. We must content ourselves with making slow, steady gains without huge drawdowns, the classic signs of losers.
@Prospectus – maybe you’ll like swing trading. I did. If you get the hang of it, you can make the same amount of money while spending much less time. It’s a long-term goal of mine. The biggest hitch for me was that the learning curve was much longer since the frequency of traders was lower. With your analytical mind, I think you’ll make it work.
tyro: i know u are very well capitalized, but doesn’t swing trading require a larger capital base to make a living…since it can’t turn it over as often?
John – yes, you’re right, in general swing trading does require a larger capital base to make a living. You can join a prop firm and get 10x or 20x leverage intraday. If you take a $10k account and leverage it up to $100k then consistently capture a 1% move, you’ll be making extremely good money. Experienced day traders can probably do this for long enough to build up their capital.
On the other hand, you would be foolish to leverage your account this big overnight, even assuming a prop firm would let you (Bright might allow it, but only if you were market neutral via pairs). You are also making a percentage of your capital when you swing trade where day trading is really a percentage of your risk.
So yes, if a small account holder is willing to use extreme leverage day trading, then there can be a big difference in the amount of money he makes day trading as compared to swing trading. For a medium account, the returns will be very comparable, and for a large account, swing trading will win since intraday liquidity becomes an issue.
However, it doesn’t sound like Prospectus is using much leverage and if he is, it doesn’t sound like it’s working too well for him. If he’s unleveraged and subject to pattern day trader rules which limits the number of trades per week, then swing trading could be much easier. As you move to large time frames, movements can “smooth out” and be easier to catch. Any move will also be for a much larger percentage. For these reasons, Prospectus may find that he may make more money.
tyro: thanks for the thoughtful response…i wasn’t really talking about prospectus situation as i believe that’s what he needs to do…i was just wondering about your response that u can make the same amount of money with less time
peronsally, i know of at least two traders who have accounts with 50 grand or less who do this for a living…i shouldn’t draw too much from these two examples, but i think a trader would be hard pressed to make more money swing trading with an equal account size…i don’t have any facts to back that up, so that’s why i asked
I know of one trader that had a $50k account and made a living swing trading for a few years (they’re now day trading the e-minis). He was making over 100% which sounds like a lot but it was only just paying the bills and not compounding.
@Tyro: That’s awesome. If I could just not lose money I’d be ecstatic.
Prospectus – check out Spydertrader’s Hershey Equity Journal on elitetrader (I have a link on my blog somewhere). He goes through exactly what he was doing. He had a $50k account for swing trading and using a fairly (but definitely not entirely) mechanical system, yielded >100%. You’ll never be able to trade without losing, but you should be able to have winners which counterbalance your losers.
I tried trading it, made money, but didn’t keep it up. (I’m currently in the process of automating it.)
Luck.
Pinoy’s announced he’s going to start going through pseudo-live trades off daily charts on his blog, one at a time. That should be informative to watch.
Awesome! Yay Pinoy!
Jack,
“The truth is that there are nor great day traders alive. John Train wrote a number of books about this years ago. He wrote about “Money Masters”. He never found a truely great day trader.”
So is this your opinion, or something you read and believe in to be true? Must be tough for you to have any sort of paradigm shift with that thought process. Perhaps Mr. Train didn’t look hard enough, or even try himself to be a daytrader. This is the most ridiculous post I have read in a while. We would still be in the stone-age with your line of thinking.
zoomie 1, jack 0