The fantasy of day trading and the market makers
Some months ago I while I was visiting a friend I found a book that he was reading. The book was for those interested who want to invest doing day trading.
The author of the book is a typical guy who says that he is a day trader (a successful one of course), and gives trading courses.
I could not resist the temptation and told my friend what I thought about day trading, and the fact that it is the best fastest way to bankruptcy.
I told him that day trading was very good from the point of view of brokers and market makers, not traders. That friend, who is new in this world, did not believe me and said that he thought that day trading could be mastered.
Day trading interesting
He said that it was faster and more interesting.
I did not want to argue or try to convince him, so I left the conversation there.
I saw something similar one of those days, while looking in a trading forum. Someone was complaining and uploaded an image of his trades: he had many ridiculous profits and a stunning loss that was 15% of his account. I did not need to say anything since other veteran trader told the guy that he would not go very far trading that way.
A lot of trades, day trading and no money management: a sure way to end in disaster quickly.
Day trade world
It seems that nowadays we live in the world of rush, and trading is not an exception.
What is more, with the massive internet usage and the possibility to do everything from home, the day trading has gained in popularity.
Decades ago, it was not that easy to do day trading.
People needed to call his broker to send an order. Only rich guys, who did not need to work, could try to do some day trading. Nowadays you can do it while working from your mobile.
Today there are lots of what used to be called bucket shops which are everywhere in the net.
Those are the famous market makers. However, the problem is not the market makers, but the customers who use them and try to beat them day trading.
The possibility of doing successful day trading is nearly zero. The transaction costs – spread, commissions, and slippages – are so big, that doing day trading is more similar to play bingo or go to the casino.
The last fashion in the world of trading is the binary options industry. The proof that it is succeeding is that it is growing exponentially. That massive growth comes thanks to the extraordinary loss ratio of the customers, who lose money so rapidly that when they realize, they have lost all. However much, they try not to.
This type of broker works like bucket shops. Their way of making money is with the loss of their customers. They need 95% of them to lose. There could be some winners doing this game, but I think that it is likely that there are not many, if any.
Day Trading Gurus
It is curious how many proclaimed day traders teach so many courses throughout the year.
Do you really think that a professional day trader is going to lose his time teaching a course?
Well, there a lot of people who believe this.
I can understand that there is someone who has moderate and decent profits every year, and makes a living teaching courses, or writing books, or whatever. He is not pretending to be something he is not.
There are actually some good people out there offering some decent courses. But the great traders will be trading their own money or managing funds.
That is what Kovner, Seykota and Marcus did. I do not imagine them teaching trading courses.
Those who say that they are professional day traders and teach courses and give services like signals do not really make a living out of day trading as traders, but as vendors of “hope”.
Day traders marketing
They are master of marketing and deceitfulness.
The friend I talked to before said that a successful day trader would teach courses because he had the need to teach people. I told him that yes, a good trader can give a course but it would not be a day trader.
What successful day trader will teach his own method to a lot of different people?
Does not him understand that if he does so his system will be worthless in a short period?
Jack Schwager explains in his book The New Market Wizards, the problems he had to interview some of the turtle traders. Nobody is out there giving his secret formulas to the rest of the people so easily. It cannot work like that.
I admit that I may have a prejudice against day trading.
I cannot help myself. In fact, I think that it is a very good and profitable activity, but not for us, the traders, but for them: the brokers and market makers. And if you find someone who really is day trading for a living, he will not give you his secret easily. On the contrary, it is more likely that a guy like that becomes a hedge fund manager.