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To begin with, the popular notion of the short-term, and especially the day trader, is rather narrow. When everyday investors hear about short-term trading, all they hear is how much it's like gambling. They hear that traders are being set up like unsuspecting sheep being led to slaughter; how they all are losing large amounts of money. |
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In addition, when it comes to day trading they don't understand how any money can be made scalping an eighth here and a sixteenth there. They don't know why anyone would possibly want to "burn tickets" by compulsively trading in and out of positions all day long, paying so much in commissions, along with short-term capital gains on whatever profit may remain. The public certainly doesn't view this kind of trading as having anything to do with a professionunless you want to call it professional gambling. |
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Like almost any subject that is handled in a cursory manner by the media for its sensational news value, the story is not so simple or one-sided. And I say this making it clear that my bias is against scalping, fully aware of how difficult it is to consistently come out ahead in day trading. Indeed, what is presented in this chapter is oriented toward day traders and other short-term traders thinking more like investors, exactly because I understand the risks undertaken. |
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Yesterday, while visiting the local trading firm, I was told about one of the hypertraders on the floor who has been known to trade up to 500 times per day, or 250 round-trip tickets. The guy pays a gradually lower commission rate the more he trades, from $20 per trade down to $8. Sometimes he'll make $9000 per day. When he subtracts the $4000 he pays in commission costs, he still has a net gain of $5000 for the day, before taxes. |
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Now, while large numbers of day traders have no particular interest in (and are not suited for) this kind of hypertrading, who's going to argue with a guy able to earn $5000 for sitting at a computer terminal for a few frenzied hours hitting buy and sell keys on the keyboard? If this guy can consistently make large amounts of money, it makes sense to ask: at what point does the element of gambling decrease and the element of knowledge, instincts, and execution increase? How long would he have to earn good income before we entertained the notion there was something else happening here besides gambling luck? |
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