Day Trading Wizards? Or Just Newton's First Law

Tyler Durden's picture

One of the most amusing side effects of the recent non-stop, free-liquidity, forced-covering rally, is a deja vu flash back to a decade ago: a surge in day traders. The New York Times presents a romantic look at this rare breed of traders which emerges every time the market is in melt-up mode, be it in the days, during the credit bubble, or now. And, just like so many times before, as soon as the market peaks, and subsequently crashes, these various "traders" evaporate, and the assorted business models associated with catering to the day trading clientele, be it heatmapping services by every discount broker, or assorted Twitter services, go the way of the dodo. Until the next bubble re-emerges. As for the fabled secrets behind day trading technique, the NYT is laconic: nothing more than Newton's First Law of Motion. Alas, this is recipe for unmitigated disaster, when one considers that day traders are at the bottom of the information and transaction latency pyramid. And when one factors in transaction costs (sorry day traders, soft dollars work for hedge funds when the trading is with other people's money; in your case money talks and BS walks). Of course, in the meantime, this strategy, just like any other concoction to suit the times, could very well be profitable. Until it isn't. Then again, profitability instills a false sense of security. and the conviction that one will pull the plug on winning trades ahead of everyone else. Good luck.

While the full NYT article deserves the once over, here is the most amusing part:

“A common phrase in this business,” says Mr. Lindloff, “is ‘the trend is your friend.’”

The more you listen, the more you realize that for all the high-tech
gadgetry behind Today Trader, at its core is a Newtonian principle
formulated more than 300 years ago: a body in motion tends to stay in motion.

The problem is that stocks aren’t bodies and their motion is subject to
forces Newton could never have fathomed. Some of those forces are hard
for the Today Trader duo to fathom, too. Mr. Gomez says that day
trading has become far trickier in recent years because of the rise of
robo trading — the use of computers to automatically buy and sell huge
numbers of shares in superfast bursts, based on algorithms.

Big, muscular Wall Street veterans like Goldman Sachs
have the money, smarts and brute power to dominate this computerized
battle, and many day traders may not even be aware how outgunned they
now are.

“It’s not something we fully understand, but algorithms don’t have
emotions,” says Mr. Gomez. “It’s like these machines can smell a human.
They can smell the fear of a discretionary trader. Stocks will still go
from Point A to Point B. But what used to be a waltz is now more like
mosh pit.”

Daily hand-to-hand combat with a bunch of robots? It seems kind of
crazy. But is it any crazier than leaving your money in the same place
where it languished for the last decade?

This is a not a simple question.

The NYT article's conclusion is symptomatic of the problems facing the entire current generation of daytraders:

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.

In the meantime, the big boys keep reaping the rewards of the gambling mania that has spread among the trading community as it pursues guaranteed riches before the Schwab screen.

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Howard_Beale's picture

As if we didn't need confirmation that the sheeple are back--now we have it. The top is very near. No frontrunning needed for the savvy traders and the little guys will get puked out in no time.

JuicedGamma's picture

The best part is that some other slobs were paying to look over these guys shoulders, but I guess if you're unemployed/retired you need to do something with all your free time.

Cognitive Dissonance's picture

"In the meantime, the big boys keep reaping the rewards of the gambling mania that has spread among the trading community as it pursues guaranteed riches before the Schwab screen."

The big boys (aka HFT) see the day traders as liquidity, as in "HAL 9000, let's have a liquid lunch and eat those day trading suckers alive."

FEDbuster's picture

HAL 9000 otherwise known as "The Terminator".  "Hasta la vista, baby!"

Great Depression Trader's picture

Day trading is financial suicide. Naturally, new comers to the market always start with day trading. The smarter ones get burned quickly and stop playing with buy/sell/buy/sell. Others get addicted and burn through 50k in 6 months.


I also started as a "day trader" and stopped when I got burned buying LVLT on a earnings release. I fucking lost a couple thousand dollars as the stock went from 1.03 to .58. I sold at .75 only for it to go back to 1.03 and much higher a few weeks later. I learned my lesson and NEVER bought a penny stock again.


Ive matured into a swing trader now. Holding positions for a few weeks even months at a time. Still risky but not nearly as dangerous as intraday crazies moving through dozens of stocks per day. The currency 30 day basis traders are the worst. I could never understand who the hell would do that.



Howard_Beale's picture

Day traders don't lose money if they have it down. I can testify to that. It's an emotional game. Sure, I sometimes swing trade 2-3 days and do longer term options...but day traders are not all losers and I have been in this game for a very long time. But then again, I always focus on indices and rarely deal with stocks.

hungrydweller's picture

Sure, but most newbie day traders do lose money because they can't pull the trigger on a small loss, thereby ensuring a large loss.

Missing_Link's picture

Or they pull the trigger on small losses too often, ensuring that they lose money with every draw-down.

Missing_Link's picture

So let me get this straight:

Everyone who day-trades will fail.

Momentum trading is based on Newtonian physics.

Those who do day-trade unanimously do so due to pure thrill-seeking behavior, not because of any rational decision-making.

All day-traders attempt to time the market manually and none of them use algorithms.

Those who do write algorithms can't possibly do them as well as those fucking geniuses on Wall Street.


Are you kidding me?

This article = FAIL.

non-anon's picture
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MarketFox's picture

In fact, there are a few truly professional daytraders who used to do the same thing at the big firms, but decided to keep all the money for themselves.

I love these know it all journalists.


Miles Kendig's picture

I never knew that some of the traders at the big investment banks thought of themselves as day traders incognito. Thanks for the insight.

Balab's picture

Yeah.....the aritcle is very poorly researched.  I make my living day trading. I trade with a handful of others that do the same.  'Algos' do present some concern but can be overcome. 



Missing_Link's picture

And if you're really good at it, you can write your own algos.  Problem solved.

Deferred Comp's picture

$199 a month to find out how to make $60 after 17 trades ? Where do I sign up ? 

buzzsaw99's picture

There are winners and losers among day traders. Too bad they can't all be the gubmint squid or they would be guaranteed profits and bonuses galore. How much better would everyone's win/loss be if they could merely dump all the losers off on zimbabwe ben?

Ando's picture

Day Trading is like an olympic sport.  There are alot of amatuers who try it for a few years but only a few can make it an occupation.  Also, the professionals that make millions trading have ZERO interest in starting some monthly service where noobs can watch them do it. 

OCTOPVS's picture


trading your own account should not be a F#CKIN hobby.  dethroning schwager's selection should be what gets you up in the morning, not bullshit equities.

Missing_Link's picture

Who the hell are you to say what should and shouldn't be a F#CKIN hobby?

williambanzai7's picture

Here is the question folks: Is it better to piss your $50,000 down a day trading hole or to let some asshole at UBS Wealth Management do it for you?

Missing_Link's picture

Exactly.  If I lose money, I want it to be my own damn fault, and not have the added feeling of helplessness knowing that I let a bunch of Wall Street idiots feed my money to another bunch of Wall Street idiots.

Liquid Markets's picture

Ok, so if a hedge fund places a daytrade it is called a high frequency trade. If a small traders does the same thing it is a day trade and he is a loser.

I have news for you. I have made a living short term trading over the past decade and made 7 figures in the process.... I can count of one hand the number of losing months I have had over that time period. In 08 when the market crashed and the buy and hold crowd lost their shirt I cleared over 500k. 

Stay with the buy and hold strategies guys...  After all it has worked so well for you over the past decade.... lol

Leo Kolivakis's picture

Note to daytraders: stay long & strong but pick your spots wisely. Also, use the 50 and 200 day EMA to gauge your support levels but DO NOT BE DOGMATIC or else you'll get whipsawed in & out of positions, and end up losing a shitload of money.

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