A Hard Look at Day Trading

We receive more requests for articles and advice on day trading than on any other topic. Beginning traders are especially interested, particularly those that have been attracted by the glamour and intensity of the pit traders who seem to be constantly jumping in and out of the markets and reaping enormous profits.

It seems like almost all traders have tried daytrading at one time or another. After all, it is very tempting to try and slug it out with pit traders. Every tick is exciting. Every rumor or news item that affects the market either creates euphoria or is another nail in the coffin. When you have a position on, you can't stand the pressure, but if you're not in the market you tear your hair out every time prices act the way you predicted.

Your heart pumps fast, your adrenaline surges, and you feel like you've finally arrived in the wild and woolly world of fast-paced futures trading. All of this sounds like fun, but as you might imagine, there are many pitfalls along the way.

"How I Consistently Make Money Day Trading"

I'm a professional trader for seven plus years and a day trader to be exact. I get so disgusted with the experts on trading methods, systems, etc. If I had listened to all these opinions about how difficult day trading is and how it is almost impossible to make money, I probably would have believed it and quit many years ago.

I make excellent money day trading most every day. I find it exciting, enjoyable, challenging and very profitable. There are many advantages to day trading:

No overnight exposure on a regular basis - occasionally I'll hold a profitable day trade overnight to get an extra pop at the beginning of the next day's session, where as a position trader will hold losers overnight regularly.

My risk is very small per trade.

I can multiply my money many times over during a day or week than the position trader.

One thing I must say though, is that day trading (like the article said) must be done in a liquid and volatile market. Which in my mind only makes day trading feasible in the S&P 500 and possibly the currencies. I only trade the S&P 500.

There is more than enough money to be made in this market every day than a human can want. Why look at anything else? You get a tremendous bang for your dollar and risk reward.

Face it, S&P 500's daily ranges average regularly $1,500 - $2,500+ per day. The average five minute bars (which I trade) have a range of $200 - $300. That's almost as much as most markets' daily bars.

If a trader is disciplined, trades with the trend, uses stops and lets profits run, he can make excellent money day trading the S&P. I only risk $250 per trade and regularly take profits of $500 - $750 - $1,000 per trade, sometimes larger. But in general, I'm not greedy and when I have a good profit, I look to take it. I love it, and I get to do this 2-5 times a day. Sure, I have losses, but they are few and small.

As far as all this mathematical babble and analysis on more transaction costs and slippage - who cares? A trade is, a trade, is a trade! If a trader makes 10 trades a year and I make 10 trades a week, there is no difference in slippage or costs. All that counts is if you made money.

If that guy made $2,500 off his 10 trades per year and I made $2,500 or lets say $1,000 - $1,500 off my 10 trades a week. I'll take my 10 trades a week, because I'll multiply my money many times over during the year. Cost per trades are all the same. If you're a profitable trader, it pays for you to trade more, not less. I'm not knocking long-term trading. Good traders make money at both long- term and short-term. You must trade what psychologically fits your style. The very short-term works for me. It is very profitable, enjoyable and cost efficient.

Also, I pay $16 round turn, just to let you know I'm not much different cost wise than anyone else.

People say they don't know many day traders who make money consistently. Well let me tell you, it has nothing to do with day trading. I hardly know anyone who makes money trading. Long, intermediate or short-term, most people I know are too messed up in their heads to trade profitably.

I believe there is just as much, if not much more money in day trading than anything else. If the trader has learned his craft well and developed a successful and simple methodology and (most traders never get this far) get their psychological or mental attitude changed to the right mode for successful trading - this is the true key to winning.

Let me preface all this by saying, I believe the S&P 500 is probably the only market worth day trading on a daily basis. Bonds don't have enough range and with currencies (most of which make the majority of their moves overnight). Now and then you'll get a $1,200+ intra day day in the currencies, which is a very dead day in the S&P's. So intermediate to long-term trading would be better in most all other markets. In closing, daytrading can be extremely profitable, and long-term. You just have to learn how to trade.

As I write this on December 2nd, I made $1,800 per contract on three trades in the S&P for about 5 hours work. How many long-term traders made that much in one day on a one-lot . . . very few on very few days, I'd venture to say. I do this at least once a week in the S&P.

As far as burnout, I don't have that problem. I look forward to getting up and being at my monitor throughout the day. I love trading. However, one must be balanced. I take breaks and days off to relax and vacation.

I'd rather be at my monitor every day in the comfort of my home from 8:30 am to 2:30 p.m., with my family, doing something I enjoy, rather then going to an office and putting up with that nonsense.

What's so hard about day trading and watching the monitor - beats working. I think day trading provide s a great life-style.

Reprinted with permission of Technical Traders Bulletin - Part One - Extracted from Commodity Traders Club News - November Issue

How I Successfully Day Trade the S&P 500

In trading, I would recommend trading with the trend. I know it sounds cliche, but I have found it is the most rewarding (I found this out - like everything else - the hard way).

Selling tops and buying bottoms is like being a salmon. You are always swimming upstream against the trend. You may get a good trade now and then, but a market will wear you out in the process. I have always found these trades looked great going back on a chart. In trading real-time from the hard right side of the chart without the benefit of hindsight make these trades difficult to not only see, but see through to the profitable end.

So trade the trend. Enter on pullbacks, use reversal bars that make pivot lows/highs and close back in the direction of trend. Move stops quickly. Take reasonable profits from the markets trading that day. If market is slow and in a trading range mode, go for less. How do you know what to go for? Your experience will tell you. There are no hard and fast rules, sometimes I get out way too soon.

Sometimes I stay in too long, but in general I do OK and get my share.

I hate to say it, but good trading is not 100% mechanical. I wish sometimes it was, but that's what your there for. I find that good trading will be 80% mechanical or/so and 20% will give you the flexibility. To use your experience and feel for the market to enhance your method and make it comfortable.

I'm not saying you can't be 100% mechanical. I believe your most profitable trading will be a system that allows you some input on entries and exits. I use a 3 and 5-minute chart, side by side and take the first signal. I get in the direction I want to trade. Sometimes a 3 will get me in and a 5 won't give me the reversal bar, and vice versa. This way I don't have many moves pass me by. One of these usually will get me in.

I have been told that many people have called Dave Green wanting to share my system. So I will, but I told Dave it's ridiculous. I know these people are thinking, If I can find out what and how this guy is trading, I'll use it and I will start making money. I'll be rich. All I need is a good system. It sounds like this guy has something really hot! If he will just divulge it. Well, if you really look at what I'm doing, it's waiting for a trend to begin and getting in on pullbacks that usually come into a 38 - 50 - 62% Retracements of the last swing and reverse out of there back in the trend direction. Very simple.

This was probably being done before 1900 - you can do this. So why are most people losing money daily - read on.

Editor's Note: Some of S.A.T.'s methodology is depicted on his chart which appears in the print version of this article:

(By the way, this simple method is the best way I've ever seen to trade. I just put my own little wrinkle in it with common sense money-management). I'm not doing anything new or secret.

My method is very simple and easy to trade. I hope this gives readers some ideas. However, I want to make some caveats and warnings for all the wanna-be- traders who want to trade for a living and/or think they can.

I'm no market wizard. I still trade mostly one and two-lots and I don't live in a $500,000 home or drive a Rolls Royce. My trading has become very consistent and profitable and continues to get a little better every month. My method is my tool. It's an excellent tool and works extremely well when I use it the way it should be used. If more money is lost than normal, if stupid or random trades are taken, it's not my system or my method that has failed, it's me, myself, and I, (Yes, I take stupid trades now and then) I'm human. I try to keep them at a minimum and allow for them. My first 8-years of trading results would probably make you throw-up. Lord knows my wife did!

The point I'm trying to make is that learning how to trade profitably is very difficult. Once learned, it becomes simple and fun, like I mentioned in December CTCN article.

I feel sorry for the people who write to these newsletters or forums. Most of you are missing the boat (just like I did my first 8-years). I see you squabbling over data vendors, system vendors, methods, hotlines, new and old systems. People who made false statements about their product.

You are too concerned with continuous data or the other kind of data (I forgot what it's called). Optimization, back-testing, percentage of wins, maximum drawdowns, broker problems, new software programs, books, articles, seminars. (Oh, I just remembered the other data is called perpetual, I think) etc., etc.

This stuff is all secondary in nature to success. All this is crap. It will not make you money and is a complete waste of time. Believe me, I know.

People need to work on what's inside them. Your psychological makeup, how you interact with the market and how you deal with fear, greed, anxiety, etc. It's you against you every day. Not you against the market. Not you against another trader.

The market is going to do what it's going to do every day. Whether you're in or not. The only thing that determines if you make money or not, is how you react to market action. Only you can give yourself money or lose money trading. Not the market, not the system, not the data, not the software package you use, not the hotline, book or seminar you purchased. Just you!

Do you would-be or aspiring traders finally get it? Most of you are looking in all the wrong places as the song goes. A perfect example, is in last month's CTCN article, page 2 by Robert Edwards. He wants to improve his trading and I'm sure he is trying very hard. But as I read his article, Robert has missed the boat and will never truly succeed until he works on his psychological flaws. For example, he continues to let fear and greed ruin his trading. He's afraid to let a profit run, for fear of giving back a small profit (greed).

These are serious problems and deep rotted in his psyche. However, he's not seriously dealing with it. How do I know? Robert made the statement "I may lose next year. If I do, it must be, it will be, because a better team beat me. It will not be because I beat myself." Now Robert, what kind of stupid statement is that.

It shows you take no responsibility for your losing, some other team or guys beat you! Robert, if you lose next year, it will be because you traded poorly. You didn't react well to market action. Nobody or no market is out to get you. They don't even know or care that you exist.

Your assumptions are not quite right on what it will take to turn your trading around. You say you must change your patterns - get some guts - you believe as you stated "If you trade you will error" and "Trading is like throwing a knife in the air and catching it in one's hand and getting bloodied pretty good." That's a real positive view of trading, isn't it!

It is no wonder your having trouble. You truly view trading as a very negative thing. You really do! You must work on changing your views into a positive attitude. Can you be honest to yourself to do it? You must, if you are to succeed.

I trade 2-5 times a day. If I felt as you do, I'd probably blow my brains out in a week. I look forward to each new trade. I can't wait for the next signal. I'm confident enough to know I'll make money 6 to 7 out of 10 times. That's the attitude to have - positive with confidence.

I don't mean to pick on you, but your case is typical (I was there once). I hope you will take this in a constructive way. It will change you. It will take sometime, but you can do it.

I'm writing this letter for therapy to keep my concept in the front of my mind, as well as helping others. I speak from real feelings and experience.

I started writing a short letter, which has turned into a lengthy dissertation. I hope I have awaken some of you.

It makes me sick to look back at my horrendous years. I went to all the seminars, bought systems, books, tapes, software. None of them made me money, because I had some real psychological issues to resolve that only manifested themselves in trading. If you have any personality flaws, trading will bring them out.

Do you really want to trade for a living and enjoy the kind of life-style it affords? One of freedom and money. Then you better be prepared to deal with your dark side and confront your psychological weaknesses and be honest with yourself (painfully so) be willing to change. It's not easy, but can be done. I have come far enough to turn my trading around - but I work on it every day.

Do you have problems with placing stops and taking a loss? Do you get mad at the broker or the market when you lose? The market doesn't do what you thought it would do. Do you get mad at that stupid system you bought? The system went into its largest drawdown the day you started trading it.

The list of questions goes on and on and yes I've done all this and more. Resolve to turn your quest for trading excellence and profits inward - yourself. Learn to expose all your weaknesses and then work on them. Be very honest with yourself and humble. Get rid of your ego. You want to be right on a trade attitude. Risk 2% or less of your equity on any one trade.

Do this and you'll make money with any system. You will be in control, not the markets or the Holy Grail Gizmo's associated with it.

I wish everyone the best and hope you don't have to go through what I did to succeed.

Cheer up, because it can be done and it's worth the price when you have success. P.S. - I've said my piece - got it off my back and hopefully helped some. I'm not one for much interaction and have made myself somewhat of a hermit with trading (It helps to not talk with traders) to be successful. Too much B. S. gets in the way.

So I will leave you all to ponder my thoughts. I don't care if people don't believe I'm right, because I know I am. I speak with experience, conviction and compassion for those on this journey. I will not be writing again and will now disappear into trading obscurity to enjoy trading for a living!

Extracted from CTCN Issue of December