By Timothy Sykes, #1 ranked trader out of 50,000+ on Covestor, blogger and author of ‘An American Hedge Fund’
When I read James Altucher’s latest article entitled “8 Reasons Not To Day Trade” I couldn’t help but feel anger and within a few hours of reading it, I experienced many of the symptoms he describes, although in a slightly different context…my blood boiled over, I felt as though I couldn’t produce anything until I wrote this response, I rubbed my eyes to see if his post was even real, somehow thinking it was impossible that he could write such blasphemy and then I had a delicious meal at my favorite Rome Restaurant Da Ivo…and I burped a loud and satisfying belch.
You can read my whole biography here but to summarize: as a trader for the past 12 years, day trading made me a millionaire by age 22, a wannabe hedge fund manager by age 23, a reality-TV star by age 25 and now a trading coach/blogger with over 1,000 students by age 29…and trading has taught me many more qualities which are less apparent but equally, if not more, important…
In short, I owe day trading everything and despite my friendship with and my tremendous respect for James, the industry cries out for a rational defense…which I intend to provide.
And just like the occupation itself, whether or not you should day trade comes down to risk-reward. While James lists 8 potential risks, below I have listed 24 potential rewards, giving day trading an overly simplistic yet surprisingly accurate risk-reward ratio of 3-1, an enticing ratio indeed…as any trader will tell you.
1. There are few greater thrills in this world than winning on a big trade in the stock market—and trust me, I’ve done quite a bit of thrill seeking in my life; everything from sky diving (twice), partying in NYC, climbing the Great Wall of China, eating the best sushi you can imagine at 5am at the Tsukiji Fish Market in Tokyo, finishing Paul Lambradt’s 23-course tasting menu at his former Atlas restaurant (try Corton, it’s my favorite restaurant in NYC…next to Soto)
2. Forget trading win thrills, even when you lose trading is exciting intellectual gambling at its finest…no more low odds Keno, years-of-training Poker or elderly Bingo, day trading is THE most exciting way to speculate and if media leaders like CNBC and theStreet.com weren’t so prude, the industry would have a better rep. The now defunct Trader Monthly magazine got the exciting part right, but their incompetent leader Randall Lane wasn’t a trader himself so he didn’t get what trading was truly about and his superficiality wasted any goodness instead focusing on luring luxury brand advertisers and encouraging risk taking and spending (wrong!).
3. You aren’t as smart as you believe and in this economy, you don’t have that great of a future either…the good news is that neither intelligence nor potential is required to be a consistently profitable day trader.
4. James says creating “a system” and mastering its psychology is difficult and that’s true, but the internet has allowed those of us with proven systems to show off and teach others—you don’t need to create anything anymore, this is an enviable time in history where you can use veteran traders to cut your learning time dramatically. I wish it were that way when I started, but back then it was impossible—now is a great time to take advantage of the technological trading revolution.
6. That’s right, trading isn’t just about making money, it’s one of the best endurance tests and mental challenges around. Forget playing Farmville and Angry Birds; are you an adult or a child? Trading separates the men…
7. James talks about how day traders have no career nor networking since watching a position consumes so much time. I agree except for that many with “careers in finance” have it worse—just endless happy hours and cubicle hopping—why do you think mindless entertainment like TMZ, Perez Hilton and CNBC are so popular? Gossip is for the bored and happy hour characters are trying to relive their college days; at least in trading when you waste your days away, it helps you improve over time.
8. And yes while 90% of traders lose (academic studies), if you are part of the magical 10%, you don’t need to read about celebrities and day dream, you have a shot at making the big money so you can produce movies, albums and when your artistic endeavors fail—which they likely will—at least you’ll be connected and rich enough to party with the celebrities enough so you’ll make the gossip pages “financial career”-types can only read.
9. Oh you didn’t know—your dreams of becoming a famous athlete, actor, singer or model—judging by TV ratings these are the careers Americans want—are far worse than the odds of becoming a rock star day trader. I wish there were more detailed stats (hello http://profit.ly in 5 years), but for now experience and logic tells me that many more than 1 out of every 100 veteran traders is a millionaire if not multi-millionaire…not so with those other “careers”, even successful veteran singers, actors, etc. seem to end up in retail sales and as waiters and waitresses.
10. Speaking of movies, just like The Karate Kid waxing cars to learn karate techniques, tape reading, while boring and time consuming, teaches you a TON about the stock market and investor psychology…in trading, there are lessons everywhere.
11. James rips on the lack of social life most traders have, well, here’s a news flash: if you’re even thinking about day trading, you’re probly some weird ugly dude in the first place whose idea of socializing is going on Facebook, PlentyOfFish or Chatroulette…aka you had no life BEFORE you got into trading so at least now you can have no life and try to make enough money to finally compensate for your social incompetence.
12. James talks about being able to feel his own heart beating when a trade is going against him and I get that same feeling. The good news is that as a veteran trader, your body knows when a trade is very wrong and that intense heartbeat isn’t a bad thing, it’s a biological warning system trading has helped you develop reminding you to cut losses quickly!
13. Oh that’s right, while James talks abut the health, social and life risks of losing big, it can all be cured/minimized by one simple rule: cut losses quickly. As most any veteran trader will tell you, this skill is required to survive over the long term and it’s not just applicable in trading, but also for real estate, long-term investing, heck even employee and personal relationships!
14. Yes, staring at computer screen for too long does make your eyes go bad which can be countered by the fact that if you focus on ideal trading setups—which are rarer than the junk that most scalpers play—you don’t need to sit in front of the computer every second. If you look at the charts of my specialty, blatant paid pumps like RMCP, CPMCF and GVBP, the key is having patience enough to wait for them and then play them both on the long and short side when they appear every few weeks. And if you still want to research and watch in the meantime; get a glare protector—it works!
15. As for traders creating nothing, that’s wrong. Traders are the unappreciated oil that powers the engines of the financial markets. We provide much needed liquidity and while estimates range from 5-50% of overall daily trading volume,I hope that the day never comes where traders are removed from the markets in order to discover exactly how much volume we’re responsible for as when that happens the markets would likely crash without our presence. Focusing on my specialty of short selling penny stocks, if short selling of these carcass companies were disallowed, imagine how high some paid pumps would go without any sane forces being able to intervene…instead of stocks surging from $1 to $4 or $2 to $7 in a few days, there’d be runups from $1 to $50 and $2 to $170/share…and the inevitable crashes would be much worse too…total market chaos…day traders, and especially short sellers, are VERY much needed.
16. Unless you’re a forex freak, market hours of 9:30am-4pm are pretty reasonable. Sure, sure, most of us take it over the top, but remember we’re socially incompetent and our ability to party with celebrities and find the best partners is dependant on being successful, so over-working, competition and the never-ending quest for success drives us to be the best we can be…imagine if wannabe artists, musicians and writers had that same drive…oh how much more useful millions of people would be J
17. That’s right, since so many traders do lose money, surviving comes down to who wants it the most. So the survivors are usually very well read and can draw accurate conclusions faster than others…oh yes, trading makes you smart and decisive. The key is not getting to arrogant and risk-hungry such as LTCM/Neiderhoffer.
18. Unlike other 9-5 jobs, the best trades usually present themselves at the market open and near the market close…I know many traders who make six and seven figures/year working roughly 2 hours per day and never holding any overnight positions. Name another job with that monetary potential/low risk…I dare you…and I’m talking ethical jobs only.
19. Since many traders are adrenaline junkies and many of us have millions, we tend to have a bit of fun. I won’t name all the possibilities of what you can do with your trading profits as that would make you think the fun is limited…while in fact, it’s a big world and the potential for fun/adventure is unlimited. I know talking about money is taboo, but if anybody else would be honest like I am, you’d start to see the potential.
20. If you even know the slightest basics of day trading, even if you fail, the industry is so full of suckers that you can start a “trading education” firm and hardly anybody will even know if what you teach is real or not. There have been several frauds busted and many more not busted who fit this description…but hurry since my two new websites http://www.investimonials.com and http://profit.ly are gaining momentum so creating a profitable fraud is getting tougher and tougher. (Even if you do get caught, you can still write a best-selling book like The Wolf Of Wall Street and negotiate with Leonardo DiCaprio to play you since crime capers are always in demand…easy to film and great commercial appeal)
21. Heck, you don’t even have to be a fraud to teach, learn the basics of day trading, make a little money and then teach honestly. My little $1+ million/year educational product business is run my myself, my dad and my mom and my strategy is unscalable, unable to be covered by mainstream media and full of obstacles! If you have an easier strategy that can consistently earn $5,000/year, you can teach others and sell it for $500/year and everyone wins…seriously. And I know of a TON of traders and strategies that yield between $5,000-$50,000/year, not enough for a full-time career in trading, but if those people also taught, they’d find the supplementary educational income to be greater than the actual trading profits.
22. If you become an expert trader in a niche, it’s pretty difficult to lose. Niche traders don’t get ANY press or respect, but their income is steady and exemplifies how great day trading can be.
23. Think of how many lazy Americans would love to earn solid paychecks just sitting on their fat butts…welcome to day trading.
24. Not to mention that as a day trader, you’re kinda like a cowboy, independent, rugged, rough around the edges…cubicle monkeys and forced-to-be-superficial bankers and brokers are jealous to no end. Go earn your commissions and hate most of the stuff you say, these salespeople are barely human anymore, sad.
25. And if you’ve ever hung around day traders, we talk faster, think faster and do things faster…we get more out of life because trading is a fast-paced job; I don’t know too many day traders who get along with elderly-Bingo-playing-adult-diaper-wearing value investors named Warren.
26. Ah yes, we can have attitudes and most of us become jaded and cynical, but in finance this is required to survive. Traders might feel connected through a kind of “brotherhood”, but we don’t trust each other because trading is a battlefield and veterans understand this.
27. Whoops, I went over my goal of 24 reasons, which brings up my last point; despite working with numbers all day, many successful traders, including myself, are terrible at math! My students, friends and parents laugh when I can’t calculate simple arithmetic problems, but trading involves a different kind of math skillset since the numbers always moving and over time, I develop a kind of gut-based rough-estimate mathematical talent that serves me well in fast-moving trades.
Ive been in this biz for 13 yrs..My response to the 9o% failure is that it's actually wrong 100% fail but only 10% have the moxy and determination to find success.
Posted by: ray | November 10, 2010 at 09:11 PM
Great post man, i agree, started to currency trade 3 years ago, studing Economics, just love to trade, doing good slowly (at my breakout point :)),
its funny that people say trading is the riskiest business around because they just dont do the real accounting math with other possible business options around using same initial capital say for example ($5,000-20,000).
Trading is a business , doing your homework and cutting loses short is the most important thing, if you treat it like a hobby , it will pay back like one.
I have many close friends that opened business (several restaurants. t shirt shops, music stores) and had to sadly close and be endebted because of so many external factors rather than because of them (rising prices, unions, corrupt authorities wanting more money, theift in there company, huge taxes everywhere, huge paperwork system, economic crisis etc etc)
plus they had to burn there cash very quickly 100% and use up all their initial capital very quickly in purchase item for there business operations (tables, room decoration,staff, inventory blahblah blah plus there normal operation costs
While in trading the only problem is the trader.
Your initial capital is always with you , no set up costs and purchasing so many things that another business would need to purchase before day 1 of opening and receive the first customer (imagine the items to buy opening a restaurant from small to big price items)
So people who say that trading is the riskiest business do your f@ckn math , the same 90%- 10% rules apply to small business check US government stats, the difference is the cash burn , the expected time of initial capital returns and external factor that cost more to the business. see the break even point and compare these to business model for fricken sake.
In Trading you can make money still keeping your initial captial ($5000 ) and using the golden rule of 3% max risk per trade, but people confuse their BAD trading with they think the "world turn round". Its like a fat football player blaming his lazy ass on Pele or maradona for not being the greatest footbal player this indiviual would think he should be...and doesnt do anything himself.
Trading is a battlefield , either you fight or you dont, but dont go around saying how to fight a battle if you got your but kicked ok...
Posted by: trader | December 5, 2010 at 11:42 PM
It is really very good and helpful information that you have provided here.I hope that many people will really like these information.The most I have ever traded with is 3 monitors. But its brutal on the eyes.Personally,think daytrading doesn't make sense unless you have a massive edge and massively good psychology and stamina.
Posted by: Trading Education | December 26, 2010 at 07:20 PM
Hello friends,
I just came to your post and reading above thing it is very impressive me and it is very nice blog. Thanks a lot for sharing this.
Posted by: Day Trade | January 31, 2011 at 11:29 PM
whilst I dont agree with day trading, this did make for interesting reading, and I will conceed that some pro traders have the skills and stamina to day trade the price action of the markets sucessfully.
Posted by: price action | March 25, 2011 at 07:25 AM
It seems most people are looking for a day trading course or a day trading system that can get them more than 5000 a year. Most day traders are full time behind the monitor with a lot of study. Psychologically, it is very difficult unless you have a business strategy, clear system and manage your risk at all times. Day trading is quite arduous if you don't have the right mentor, one that actually trades.
Posted by: Day trading course | March 26, 2011 at 12:23 AM