Martin Kronicle

Personally, I think day trading requires too much work for too little pay. The article in the NYT article Day Traders 2.0: Wired, Angry and Loving It reminded me of what I don’t want to do during the day: be nailed to my computer watching 3 minute bars.

I’ve written a few things on prop trading and day trading. You can search the blog for “prop trading” and you’ll see 5 pages of material to read.

4 Tools For New Prop Traders

Prop Traders Can Sit On Their Hands

A few other bloggers wrote about the NYT article too. Brett Steenbarger, who writes the excellent blog TraderFeed, wrote an extensive post on the article and listed what he thinks are the salient points to succeed as a day trader. If you are interested in this sort of material, Brett’s blog is about the best there is.

Dr. Brett wrote, “I’m in an interesting position, because–as a trading coach–I see the actual trading of actual traders, not the performance claims of wannabee gurus. I also see which traders have been able to sustain meaningful livings from their trading and which have not.”

I see the same things from my students whom I coach. But I don’t see it from the ones who’ve failed or blew up. We may be seeing the survivors only, or the ones who haven’t blown up — yet. You can teach everyone the tenets of trading down to a “T”, but getting someone to stay “on message” is something that is between them and their higher power. I have nothing to do with their successes nor failures when it comes to that. And if you haven’t begun trading yet, this is something you should put a lot of time into before you attempt to manage risk (trade).

Many of you might disagree with me, but it takes years and years to become a great trader. Michael Marcus blew up 2-3 times before becoming the best commodity trader in the world.

The NYT article ends this way: “Mr. Gomez trades his own accounts but spends much of his time answering questions posted in the chat room. One is from a subscriber, Rick, who asks, “What do you guys do to stop kicking yourself (emotionally) about missed opportunity?”

“The only thing you can control is your attitude,” Mr. Gomez replies into his microphone, moments after the question is posted. “Not looking back, not kicking yourself for not catching the whole move. You’re never going to be perfect. Nobody is going to be perfect.”

Not even Today Trader. By the end of the day, Mr. Lindloff has traded 60,000 shares and is up $165. It would be a satisfying return, but commissions on those trades cost $300.

“You know,” says Mr. Gomez, “a lot of people tell us that our down days are every bit as instructive as our ups.”

I tend to agree with Henry Blodget at Business Insider via his post Here’s What Day Traders Don’t Understand, but here’s my two cents on the NYT article:

- You decide not to kick yourself emotionally about missed opportunities, and then you go out and develop a better rake for your data.

- Program a computer to trade for you all day so you don’t have to sit there hour upon hour and waste the time of your life. Oh, and turn off the TV. Having it on is unnecessary to trade profitably.

- Losing days can be your best coaches. I agree with this.

- $165 for a day’s work at the screen is not a rewarding day nor a satisfying return. Lindloff has a tax bill on the gains but is cash-flow negative on the day, so it’s even worse.

- Learn to trade with the trend for stocks and commodities and use “End of Day” data. Enter your orders first thing in the morning and then go have fun. The market will go where it’s going to go whether you’re watching it or not. One of my best years (2004) was done this way.

- Sitting at your screen, double-clicking your mouse, listening to the financial MSM, following your Twitter feed, and IM’ing trade ideas to anyone who cares may be more of what you do to FEEL like you’re a trader, more than anything else.

Trading is managing risk. That’s all.

Everything else is behavioral and you do it b/c it makes you FEEL good (we are pleasure seekers). Or, it may give you confidence or reason to believe that you are a trader, when in reality you might actually just look like a trader.

A lot of fundamental analysis on GOOG recently since they’ve decided to bail on China. Stories on how MSFT’s Bing and BIDU might grow faster with GOOG now out of the way in China.

As you can see from the chart above, BIDU (blue line) has outperformed GOOG (red line) since early 2006 had you made the trade or investment at that time.

Besides outright trades, professional traders can trade the equity spread pairs trade to gauge the relative outperformance of one over the other.

In this case, you could go long BIDU and short GOOG at the same time. As of today’s close, BIDU was up $13.62 and GOOG up $8.33 on the day.

The volatility for BIDU is $16.10 or 2.62% and it’s $11.33 or 2% for GOOG despite the differences in share prices.

This trade is not over by a long shot. Like with commodity spreads, all you need is GOOG to do is go down more than BIDU, or BIDU to increase more than GOOG to make money. Of course, you can lose by having both go against you. Proceed at your own risk.

Great bookreview in the Sunday NYT about ability and talent.

…Now here comes David Shenk with “The Genius in All of Us,” which argues that we have before us not a “talent scarcity” but a “latent talent abundance.” Our problem “isn’t our inadequate genetic assets,” but “our inability, so far, to tap into what we already have.” The truth is “that few of us know our true limits, that the vast majority of us have not even come close to tapping what scientists call our ‘un­actualized potential.’ ”

At first it would seem that Shenk, the author of thoughtful books on information overload, memory loss and chess, has veered into guru territory. But he has assembled a large body of research to back up his claims.

MM: I know a lot of people who are very intelligent, but they don’t apply themselves or they have no ambition. This might be one of the reasons why people watch market porn on TV – for ideas to trade. Sorry, it doesn’t work that way. You have to do your own work.

If you don’t believe that you can develop your own trading ethos, I will share with you that you’re not going to find one quick solution and be done in 3 months of reading. You may be inspired by certain material, that’s true. But that type of material is hard to come by and will just motivate you to work harder. There are no weekend seminars that will convert you into greatness.

To become a great trader, you need to work for years and years at it. Persistence and determination have paid me much larger dividends than any natural ability I may have had.

Greece blames speculators on it’s own bad behavior and horrible choices. Say the whole world is corrupt and they sold products without giving adequate disclosures about the risks, Greece had the ability to say “no,” but apparently they didn’t.

Like the Alt-A borrowers, I believe that some were taken advantage of, but even someone with basic math skills would know that they couldn’t pay back the loans despite early term teaser rates.

It’s always easier to blame someone else, or the market for your losses. You put the trade on, you own it.

It’s kinda funny watching politicians accuse Wall St. of double-talk.

What could be funnier? Gene Simmons of KISS selling life insurance.