My day-trading lessons

Several months following my decision to engage in financial education and activity and consequent months of long-term stock trading I developed interest in day trading, which is buying and selling stock during the same day, leaving no money in stocks at the end of the day. But since day trading requires more knowledge and better tools I ended up taking a private course from a day trader, who had a developed technique for day trading and was willing to teach it for a thousand dollars. I decided to take this course, although it was relatively big money for me, and ended up taking around 5 private lessons with him, where he presented the system he’s been using.

The system was pretty simple, mathematically, but required a prior analysis of stock graphs to be done each time before trading. I opened an account for day-trading on the US stock exchanges and was mainly trading on the NASDAQ and some NYSE stocks. Initially, I strictly aligned my trading with the learned strategy and made some good money in the first couple days. Then, of course, the statistics started to get more even and I was going back to where I started.

The real problems started to appear when I began to perform different variation on the original strategy, thinking I was smart enough to make the changes. At this time I was also continuously reading more material on day trading of stocks, trying to learn technical analysis better. Now, my erratic and non aligned trading activity started to produce less than desirable results and I was quickly seeing my money flowing out of my account. At later stages I even started investing part of the money into longer term positions, where I thought it was appropriate, based on my technical analysis skills.

At the end, after about 9 months of such stock trading I closed my day trading account, taking out only half of my originally invested money back home. Half of it was lost due to one stock in long-term position which I did not exit in time, cutting my losses, but held to it until it became lower than I could bear (of course, some months later in returned to my entry position and rose much higher). Patience is an important skill of a stock trader but it is of the hardest to develop.

Overall, I could say that all the money was lost due to my neglect of the original system and the fact that I didn’t stick to it. I later read that sticking to a system, when it is your money at stake, is the hardest part of any stock trading, but it is especially true of day trading.

From a philosophic point of view I find day trading immoral. A day trader does not produce anything, he doesn’t even invest in the stocks as he has no stocks at the end of the day. In the end I felt that day traders are like parasites of the stock market, living off long-term investors, trying to outsmart both them and one another. If, on average, day traders earn more money than they loose, that means that they’ve taken money out of longer terms traders, who at least could be called investors and as such, bringing value to the financial ecosystem.

Lessons learned

• Sticking to strategy when trading stocks is of utmost priority. Failing to stick to a selected strategy almost guarantees failure and losses.
• Commission on day trading is high and eats much of your balance. Even if you get $10 per trade (one way). That’s $20 for a round (buy/sell). Sometimes you can do 5 such rounds a day. That’s $100 on commissions, and you could lose on that day in equity as well. Overall, I believe that around 10% of my losses were the commissions.
• Day trading with leverage (4 to 1 usually), can make your balance fluctuate very fast. You can earn fast and you can lose fast. One should play with an amount that he can afford to see lost in one day. I stopped my day trading for good when I lost $1500 in one day and my belly was all tight and I was very stressed. It was too much for me to have lost on stupid mistakes in one day.
• You have to have nerves of steel. Day trading is very fast and sometimes seconds play a role. Seeing your money falling in value in real time is very challenging psychologically. This in itself can lead one to break the strategy.
• Day trading is a job. Starting from the preliminary analysis and ending when the trading day ends it’s 6-7 hours a day job. And then you can loose lots of money in that time, as well. Over time this became very frustrating to me.

My conclusions

• Day trading is better done automated. It’s better to let the software perform the strategy. It doesn’t have any psychological issues. Plus, it can free one’s time of staring at the screen. If a preliminary analysis is required, one can still do it. There’s no tension in doing the analysis since the money doesn’t “play” at this time.
• One can earn money with day trading, but it’s real work, a profession, and it’s not the easiest one. It is definitely not a stable job.
• Day trading is immoral and I don’t want to be a part of it.

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