San Diego Housing Bubble News and Analysis

I hear about friends of friends that made a killing day-trading during the dot-com boom but I haven't heard of anyone making any money at it in the last few years. One of my buddies went to a seminar and dropped $3,000 for a computer program that tells him what/when to buy/sell. It was worthless! He might as well have have used a random number generator to make his picks. Total loss of 3K. I think he roughly broke even on his day trading - some gains, some losses but the software was a total loss.

I hear about friends of friends that made a killing day-trading during the dot-com boom but I haven't heard of anyone making any money at it in the last few years. One of my buddies went to a seminar and dropped $3,000 for a computer program that tells him what/when to buy/sell. It was worthless! He might as well have have used a random number generator to make his picks. Total loss of 3K. I think he roughly broke even on his day trading - some gains, some losses but the software was a total loss.

I have found that most people that talk about making a killing day-trading only tell you when they are right, and never when they are wrong. Although most people think they are professionals, most are not. There are probably a handful of folks that could probably day trade that don't work for institutions, but for the rest of us, it's not going to work. Either (1) we get to emotional or (2) we are out gunned by the I-banks or both. Also, one reason I stopped trying to day trade.... Pain in the ass end of year tax calculations even for my cpa.. It just wasn't worth the time for me, because I didn't personally  do that well to really justify the pain in the ass things at the end of the year. If you think you're one of the handful of folks that can actually be successful, by all means try it.

I've been a member of this site for about a year.
He actually has an informative Q&A this month.
I regret buying the 25 dollar membership as most of his informative articles are free.

http://www.thekirkreport.com/

I'll fess up. I love the markets. I love economics. I read about 6-8 hours a day papers on economics, company research, etc. I day trade stocks, options, and futures (commodity only). I've done this for about the last 8 years seriously.

I've made tons of money and immediately gave it right back. I stayed completely out of the dot com deal but to be honest I really wanted to short it when the nas was about 3/4 the way up. Thank god I didn't.

My feelings are its only good as a hobby. You trade what you can lose. I have other accounts that I rebalance once or twice a year that actually make me money but I'd have to say I'm probably flat when it comes to day trading. I know I made some dough the last few years but the last 8 months has killed me in my day trading accounts.

You have to have a fundamental view about what your trading (and it also has to happen to be right). Then you only trade in the direction of your view. Doing both of these will make you money but you can also get whipped out of money if you use leverage and time it wrong.

There is no free lunch and its especially true with the markets. Some guys can see through the noise to the true fundamentals and those are the ones you learn from. Definitely not day trading only on technical analysis or listening to guys like me on these blogs. I'm talking about guys with great track records like Warren Buffett, Jim Rogers, Marc Faber, Jim Sinclair, etc.

I have yet to see a day trader post his trades in public. I guess its possible to make it but I'm a skeptic and I am one.

I've spent lots of money on seminars and books and software and newsletters in the elusive attempt to strike it rich day-trading

In my journey I've arrived at these conclusions:
- serious day-traders eventually end up trading the eMinis (because of the leverage) so why not focus on them from the start
- I'm not likely to make money on a trade if I don't understand why I am in it and what my objective is (ie, I am blindly following the advice of some newsletter or 'friend of a friend' instead of thinking for myself)
- serious day-traders have to spend money on a decent trading platform and learn how to use it - I chose Tradestation because of its strategy automation capabilities - this lets the trader play 'what-if' games and test a trading idea without putting capital at risk - I believe this ability to test an idea prior to trading it is critical
- nobody is going to sell a 'sure-fire' trading system for $3000 - I'm trying to develop the proverbial 'money-machine' for trading the Russell eMini and I can assure you that if I succeed I won't be selling it at any price much less $3000)
- to succeed at day-trading I will have to expend the same level of energy/dedication/drive that it took to get my engineering degree - the difference is $600K/yr as a trader vs $100K as an engineer

My current focus is on Jeffery Katz's book, The Encyclopedia of Trading Strategies - he presents the idea of allowing an optimizer to pick not only the parameters for the trading rules being used (MACD, moving average, etc) but also to pick the trading rules themselves - Katz implies that a genetic optimizer (which is available for Tradestation) has the power to develop a profitable trading system using this methodolgy - I hope he is right - he also analyzes different entry and exit strategies in a very thorough manner

I've made about 5 attempts to trade the eMinis so far - my best trade was a position I took by accident - my worst trade cost me $3000 in 10 minutes (I know I'm right, I know I'm right, I know ..., darn, get me out of this trade quick! ...)

Gold is Money - daytraders thread.
Wiley said
"I have yet to see a day trader post his trades in public. I guess its possible to make it but I'm a skeptic and I am one."

http://goldismoney.info/forums/showthrea...

To tense for me.

A few years ago, after the dot com bust, and after I lost about $150K trusting my money with Morgan Stanley during the bust, I decided to give day trading a try. I executed 100 trades, with 98 winners and 2 losers. Why did I stop? Stress, plain and simple. You have to be glued to the real time charts for the whole time the market is open, at least that's how I did it. I traded big blocks and scalped small moves in the price. Sometimes just a couple of cents! Bottom line, it's just not worth it to me to be so absorbed in one thing. I need a life, too! Now I make a handful of strategic trades a year, and keep an eye on the market just for amusement. And I sleep well at night.

"So how can an individual know which stock to trade and make money doing it?"
The one advantage individuals have is they are (almost always) way smaller than the big firms, so we can buy significant (to us) shares of stocks without moving the price of said stock. Being nimble definitely has its advantages. It also allows us to invest in small and micro cap stocks, which over time typically outperform the S&P 500, admittedly with more risk.

Of course, it's easy to make money in a bull market. High risk, high beta stocks tend to outperform in both directions. The true test of traders probably comes during bear markets.

I guess the other advantage individual investors can have over institutions is a willingness to carry cash when the market is overinflated and be patient. Mutual funds are paid to buy stocks, not just carry cash, hence the saying "cash is trash".

I imagine being a professional trader is very challenging. I've been able to do fairly well with my modest stack of "mad money" for fun, but I haven't been doing it that long, so I may just have been lucky or simply buying higher beta stocks.

4plex,

I use Tradestation also. It's amazing. A few months ago I was in Denver getting my pilots license so in the mornings I would go to starbucks and trade before my lessons. I made 70k in a month trading nat gas. Got home and gave it all back in two weeks. Just cause their mini's doesn't mean its not still huge leverage (as I'm sure you know).

I love playing around with the automated trading but all "things" I believe trade differently which means you can only develop a system for one stock or contract. Then if you can find one that works eventually that "thing" will eventually start trading differently as well.

Even though net/net I doubt I made much if any (especially when you include tax implications) I love the challenge the market brings and I'm confortable my core holdings will do well.

Just my thoughts.

Chris Johnston

This thread is obviously right in my wheelhouse. I have had periods of my trading career where I did alot of day trading, and although during those years I was profitable, it is a very difficult and stressful way to trade. I know many day traders, and a few who make money. However, most of them blow up at some point due to poor risk management. At times I might add to a position that I am holding for a few days if I get a move against it during intra day action. An example of this was yesterday I shorted the S&P and added to it 4 points higher than my original entry. The market ultimately rolled over some and the trade closed profitably. I held it overnight, so it was not a day trade, and exited this morning for a nice profit, which was enhanced by the intra-day add. Keep in mind that I have been trading for 25 years, so I have a little bit of experience doing this type of thing.

I know of no completely mechanical way of day trading that is consistently profitable, and I would be willing to bet that I have studied just about every one that is out there. I am just waiting for the next MIT grad who is a genius that figures out some knew way of curve fitting an oscillator to past data, that ultimately fails in real time action.

Alot of bad habits were created during the late 90's due to the parabolic upmove that happened, where no matter what you did, it would ultimately come back if you hung on long enough. One of those years I had a 100% accuracy year, meaning that I did not have one single loss the entire year. This was not due to trading brilliance, it was due to a very biased market condition. This ultimately pushed me to go to 100% cash at the beginning of 2000 because I knew something was really wrong if I could make all those trades, many of which were bad trades, and still have them all make a profit. I made much less than many amateurs that year who just swung for the fences, and felt like a damn fool to be honest. However, in the end I had the last laugh and now advise many of these people.

Unfortunately many folks due to this one sided nature of the move, quit their jobs, began trading, and bragged at cocktail parties, but the music eventually stopped and most were cleaned out. They only knew one way to trade, so when the trend changed, they were blown up. I had one friend who made over 2M by owning every perfect internet stock, and knowing nothing about how to trade. I told him to sell out in Jan of 2000, which he did the opposite and bought more, only to lose about 1.8 of the 2M by the time he finally cried uncle.

I agree with 4plex in that nobody would sell an effective system for 3k. I would not sell my bond and S&P systems for a million dollars, as they can make me much more by keeping them to myself. There are so few trading systems that actually work in real time, that I am constantly approached by brokerage firms for a piece of the action with my bond system, which I refuse to give them. The only way I would sell it is if I saw its efficacy diminishing enough where I was not going to use it anymore. Under that circumstance, it would not be worth buying anyway.

The average person should stick to a more medium term horizon, but at the same time do not get sucked into this "were in it for the long term" crap the brokers are selling. Timing the general larger swings can have a huge effect on your overall returns, so it would pay to get some knowledge in this area. Stay away from day trading, we call it NINTENDO due to how similar it is to a video game just clicking away with your mouse.

Sorry for the long post, this is just an area where I feel like I can contribute something of value.

I did some day trading also, while I turned a profit, the peaks and valleys were too drastic for me. I would do research on companies, try and look at the data and say this is def. a good buy then find out numbers were reported incorrectly etc. etc.

I'm back to reading and researching before money is put to the burner again

Although my experience isn't directly with day trading, I'll post it because it still applies somewhat.

13 years ago I helped start up a new Mutual Fund called Rydex. (www.rydexinvestments.com) They were the first fund ever with a 100% inverse S&P 500 index... they shorted the S&P 500 with a -1 beta. It was called Ursa (latin for Bear) It was hot, and it grew like wildfire. They also had a 1.5 beta long S&P fund to match, called Nova. They were also the first fund to allow unlimited trades. So money managers, and professional portfolio advisers, flocked to the fund group because it allowed them to be 100% short one day and 150% long the next day, and back and forth as much as they wanted, using safe, protected Mutual Fund assets - retirement funds, etc.

Rydex grew quickly... but as the IT Manager, I was tasked with developing databases that tracked results. Over the time frame of 94-96, a period of some instability in the markets, about 90% of the clients lost money, and the other 10% did very well. It wasn't intra day trading, but it was daily trades, sometimes weekly, and I found the better investors were generally going on a monthly or quarterly transaction cycle. The ones who traded every day were unanimous losers. And these were all supposed professional money managers, our minimum investment back then was $10K and our typical client size was more like $2M. Many of them used complicated technical analysys schemes and software, none of it worked reliably well.

My point is this - Day traders mostly lose money. A very few of them make good money over a long term. Day Trading from 1996-2000 was easy - just pick something and go with it. In uncertain times, it becomes nearly the same gamble as roulette or craps. And as mentioned above, it takes utter 100% concentration at all times to avoid massive losses and to maximize the gains. If you miss the top 5 gain days over a year, your ability to make a good return dwindles down to nearly nil.

All of the grissly portfolio managers at Rydex, even while managing the daily trading funds, all said the same thing. There is no substiture for buying good quality invesments and holding them for the long term. 5% annually is miles better than 50% one day, -50% the next, and 50% up the third day, etc.

I did just like Chris Johnston did....I was winning everywhere I traded....it got scary, too scary...I couldn't lose...So I bailed and went into cash positions that seemed safe, until it played out.....with me on the sidelines watching...

My life doesn't work that way...I have never been one who someone else would say that my life was "Charmed"... most of the time the "other shoe drops" and I don't see it coming and get creamed by it...... I am mature enough to admit it now.

For example:... I can PERSONALLY take down an NFL team's ENTIRE season .....All I have to do is "want" them to win. As soon as I take a personal interest in their hoped for successful season, then they are doomed...I scientifically pick em too...Something inane like, "I liked the color of their uniforms" or "I liked a specific player"....and then POOF!!...their season grinds to a halt, riddled with key player injuries, team players being shot by cops and or gang members, players getting arrested for drug deals gone bad....etc..etc...I take personal responsibility for the Raiders collapse a few years ago...I just know it was my "high hopes for them" that took em down....I even bought and wore a Raiders baseball cap.....That was probably what really did em in right there....Sorry Oakland, I didn't know the extent of my powers back then

So back in 99 and winter 00... when I saw my stock picks taking off like meteors...I knew it was too good to last..I just remembered back to what I did to the Miami Dolphins in 97 ....and got scared....I apologize to you Dolphin fans...I am still sorry for doing that

Daytrading was doing too good" for my tastes, I am REALLY glad I got out when I did....So as I get older, in some things, I also get a little wiser !

Obtaining wisdom is not really a fair trade for the body falling apart,...gawd !..theres got to be SOME upside of getting older huh ?...but I do like the "Old Guy 15 minute catnaps" which I can take now though....

Think of 2 scenarios in which you start out with $50,000 to trade.

In scenario A you work and make $100K/yr, pay $30K in taxes, put $10K into your trading fund and trade once per year to adjust your portfolio.

In scenario B, you don't work, you just trade, trying to turn the $50,000 into $70,000 in after-tax profits that you have to live on, pay taxes on, and use to increase the value of your trading fund, AND earn profits in excess of the growth achieved by the 50K of investments. Good luck with that.

The scenario changes dramatically if you are only employable as a $20K/year worker and you have $1,000,000 in your fund. Even then, can you really do better than the market by 20K with the time you spend?

Remember - you don't have to earn SOME money with your trades. You have to earn more than you could earning a salary plus what you can earn with the investment funds in a less time-consuming investment plan.

Thanks to everyone for their insight on this thread. I joined a monthly meetup group about trading, and I am always a little curious about what strategies are out there. In general my findings are similar to my experience in the energy sector. I have looked at 100 "new" alternative energy schemes, and 100 didn't work.
At the same time you will find thousands of people telling you how much money they make in trading, and that their software really works, bla bla... But the only pattern I found is that when you ask for their track record, then they all of a sudden get offended.

Most of the time it's clear mathematics. First, let's say I am a happy investor ala Buffet, and got to a 20% annual return on my investments. Since I hardly trade, I pay about 25% tax on my capital gains and dividends (15% federal + 10% state tax). It's actually not applied every year, since I can defer tax payment until I sell. On day trading (stocks) I will be taxed 45% (35% federal and 10% state tax). So that alone shows that I would have to make at least 30% annual return to be even with my investment return. But wait there is more. Now I also have to pay some serious money for software, tools, data feeds, and of course the time that I am tying up. Depending on one's wealth, let's just call that another 10% extra that I have to make, meaning 40% annual return. Now that's unleveraged for an apple-to-apple comparison to my investments. Well, I haven't found the strategy yet that makes me 40%, but I will report when I find it...

Next is risk. That's a difficult one. Some trading schemes could be safer than a tied up investment, since you could get out quickly, have stops in place, etc. But others could be riskier, if you have a few losses in a row, or something happens to the position you are concentrated in.

Now add leverage, the magic word of the trader. In general, I would say that this just increases your return at the expense of higher risk. Yes, you can leverage different amounts in different assets, but even in some investments you can leverage quite a lot (think real estate). So let's keep talking in terms of the unleveraged return.

A lot of strategies are skewed to the nature of the market. There are some shallow and wide strategies that attempt to make an average of say 0.2% per day which would give you your >40% annual return. But then you notice that they are mostly long strategies, and in an up year most days might be indeed up a little. But this might not work in a down year (what I am more interested in).

Last, higher inflation is slightly in favor of the investor. If we enter a time like the 70s, or even worse, where the value of the dollar drops every year, trading in and out of cash will have you more exposed to the losses in the dollar. Right now prices have probably doubled in ten years, despite the productivity gains. If that gets worse, trading back and forth might make you a return just to keep even with the price of eggs or milk, while every investment might perform equally.

I met a few people that do trading as a full-time job, so they must do something right. But maybe they made their money on their house or just inherited a few million and are really just treading along. I will report if I meet someone really trading himself from the bottom up (like Chris J?).

For myself I would consider putting 10% of my capital into a trading strategy if I think it gets close to the above criteria (return/leverage/risk), and if it makes sort of fundamental sense with some statistical evidence. At least it diversifies me a little which could be great in a down year.

Anyone considering quitting their job to become a day trader needs to watch a few episodes of Wall Street Warriors and have a look at who'll you be up against. For example, the 25 year old in Manhattan who's managing a multi-million dollar hedge fund; he watches news and stocks all day, waiting for the small fry to come in and place their bets the way he knows they will -- Bad news? They're gonna short, so he drives the price up using volume. Good news? They're gonna go long, so he drives the price down, again using volume. When they panic, he chews 'em up and spits 'em out. And this is the 25 year old just starting out. Anyway, you get the idea. I know I've learned my lesson (multiple times, actually). Your mileage may vary...

How does a 25 year old get to manage a hedge fund? Don't hedge funds have minimum investments in the 6-7 figure range? Who would entrust that kind of money to a kid one year out of business school?

How does a 25 year old get to manage a hedge fund?

Simple. Just turn your $12K in Bar Mitzvah money into $1.65M. That sort of success gets noticed...

If you have enough monkeys pounding on typewriters, one of them will eventually write Moby Dick. No one turns 12k into 1.65M in a few years (legally) through skill alone.

Hahaha, that's true but the kid's actually pretty clever. Watch the show and you'll see. If I remember correctly though, he worked that magic during the dot-com days so he obviously had it a bit easier back then.

I traded for a few years with 10K just to see what I could do. Nothing big but like a casino...fun. I was down to 4k at the worst and up to 12k before I pulled the trigger and sold out. Plus 7 bucks each way. I used 500 buck blocks buying up and would sell out in minute. Skitteshness saves money. Scottrade is the only way.
What'd I learn:
Trick is not to lose
Know your exit on entrance
Take the profit and be happy
I wouldn't daytrade anything but .pk and .bb watch for the trend and in two weeks you can see 500%.
Don't fall in love. Treat stocks like whores.
I hated the weekends and every minute was watching for the MM's to manipulate the stock down 20% before the next 100% run. Don't use stops....which means you're stuck to the monitor.
It's a brutal hobby and Scottrade needs 25K for DT accounts which knocked me out at the end. I did about a half year of heavy trading before they sent me the warning. If you manage to stay liquid it'll be brutal. Best thing to do is lose it all and get it behind you. Not for the perforated stomachs.

This is only anecdotal, but with a couple of rare exceptions, the only people I knew who made real money on Wall Street were professionals--traders, bond issuers, analysts, and actuaries. Each of them has at least one story where they were down (with their own money) six figures or more. It takes serious stones (or a huge trust fund) to weather those moments. On the plus side, they get paid to follow the investing world, so it isn't hard for them to spend a bit extra time for their own portfolios--BUT when your job and your investments are that related, watch out for the busts! I know one woman who lost a mint (I think is was $100's of Millions) of client money in '89--it was Black Tuesday or something like that. The kicker is, she lost her entire bonus that year, which is most of her income, she lost a huge part of her own portfolio AND almost lost her job...
Almost twenty years later she owns real estate in NYC, Park City, Vancover, and Hawaii--so I guess it pays to stick with it. IF you can afford the Malox!
I stick with boring buy and hold. I probably will never buy my own island, but I should be making as much or more in dividends when I retire as I do now.
In stocks like real estate, it is easy to look smart and make money in a bull market, but it is the professionals, die-hards, and lucky SOB's that can keep it in a downturn.

-one muggle

Chris Johnston

Good posts on this subject. The most difficult aspect of being a professional trader is that no matter how good you are, you never know when your money will come in. Even my strategies which are proven to get 80% winning trades in terms of accuracy, can at times go a month or two actually losing money. As a result the cash flow at times is screwy. This is the main reason why many good traders manage money and write newsletters, to smooth out the cash flow. I have no great desire to deal with the public in terms of money due to the annoying phone calls about why did we do this or that etc.. as if they knew better. I had one guy who dumped me last year after we went over 6 months without a single losing trade in my bond trading service. I still wonder what his expectation was to this day. However, I do it again to help smooth out cash flow.

Last year, even though I had a 60% gain in most of my accounts for the year, I had one month where I lost over 100k. This as a percentage of my trading accounts is not that big, but it is still alot in gross dollars when bill paying time comes up.

I urge most people if they want to get serious about trading to stay away from the Nintendo stuff ( day trading ). There are many ways to skin the cat, but alot of them were formulated during unbalanced market conditions and as a result, do not work as well most of the time, as they did when they were conceived.

Rseiser, it is hard to model short trading systems that consistently make money. The reason is that there is a huge upward long term bias in the market. It is a better strategy for the average person, to go to cash during bad periods, then re-enter on the long side when conditions are better. I have a few, but it has taken many many years to refine them to the point where they work well. I know you are very bearish about stocks and RE in general, but you can see the problem in the last 6 months with trying to short what you think is a market that should come down in your analysis. You are fighting a huge trend, and that is always tough.