Day Trading: Good or Bad?

**Broken Arrow** · 03-12-2009, 09:00 AM

I'm technically a swing trader, but given the proper situation, I don't see anything wrong with it. So long as we can differentiate between speculating and investing, I don't see why not....

**KTP** · 03-12-2009, 09:52 AM

This works really well if you have a good psychic that can tell you which way the market is going to swing each day. Mine is correct 50% of the time, so I figure she is pretty good.

**noppenbd** · 03-12-2009, 09:56 AM

I have experimented with it, with relatively small amounts of money (less than $2500). In my opinion it is much safer to do this if you have an urge to trade than to do a lot of trading in your retirement accounts. So if it can satisfy your trading jones, it can be a good thing. Just don't expect to get rich doing it.

**rizzmo** · 03-12-2009, 10:38 AM

Yeah don't plan on getting rich from it. However it seems easy, for lack of a better word, to make a better return than 5% my checking account pays per year. I put $1,500 in 10 days ago, traded 5 times and am currently sitting at 74% up before taxes (44% after). I sold my last position today, so I have all of my inital capital back plus the gains (minus taxes). So:

$1,500 in bank @ 5%APY for 10 days = ~$2.09 (rounding up)
$1,500 in bank @ 5%APY for 360 days (1 yr) = ~$75
$1,500 in bank @ 5%APY for 3,168 days (8 yrs 8 months) = ~$660
Day trading for 10 days = $660

I understand there is risk for loss, but even if a stock declines and you are stuck holding a position, it is still an asset (that may even pay dividends). When you run the figures it overwhelmingly supports trading. I guess I'm curious on why more people don't do this when you measure risk versus reward. Perhaps my math is off on the bank yields as I didn't figure for compounding interest; however I don't think it will make all that much difference over those timeframes. Does anyone know how to figure this?

**Broken Arrow** · 03-12-2009, 10:41 AM

Originally posted by noppenbd View Post

Just don't expect to get rich doing it.

I just wanted to emphasize this, because back in the dot com boom days, a lot of people got sold on the idea of trading online and being able to make "tons of money" in the comfort of their own homes while wearing their favorite bunny slippers. Some pyramid schemes came out of that too.

Thank goodness, such commercials and ads have mostly died down by now.

I tell you what trading has done for me though. Without a doubt, it's been the best teacher of the economy and the market in general that I have ever experienced. It's like being dropped out in the middle of a jungle just to learn the skills you need to earn your boy scout merit badges. I love it!

The exercise may seem rather excessive, but because of this experience, I think it's also made me a much better investor overall. It's one thing to read a book and say, "Oh ok. I shouldn't do that with my money." It's quite another to see something tank for yourself, or better yet, have money involved and watch it tank. Feeling the pain, you go, "Oh man, so THAT's why I don't want to do that." and you become that much more resolved in not just avoiding that mistake from now on, but also in learning how to do better next time.

Besides, I enjoy trading anyways. Win or lose, it's just a great environment to learn from. Especially right now, to be a part of a bear market that is history in the making.

Finally, while I do NOT expect to make money from trading, I have to admit, I'm still way out-performing the index right now, by nearly four-fold I think. 2009 isn't off to a great start though. We'll have to see. But I guess that's also part of the challenge, to see how long I can stay ahead of the index. And whether I succeed or not, and for how long, is secondary only to the drive and the exhilaration that pushes me to become a better investor in general.

Anyways, the bottom line is I think it's fine so long as one uses it as a learning tool rather than a get rich quick scheme.

**noppenbd** · 03-12-2009, 10:52 AM

Originally posted by rizzmo View Post

Yeah don't plan on getting rich from it. However it seems easy, for lack of a better word, to make a better return than 5% my checking account pays per year. I put $1,500 in 10 days ago, traded 5 times and am currently sitting at 74% up before taxes (44% after). I sold my last position today, so I have all of my inital capital back plus the gains (minus taxes). I understand there is risk for loss, but even if a stock declines and you are stuck holding a position, it is still an asset (that may even pay dividends). When you run the figures it overwhelmingly supports trading. I guess I'm curious on why more people don't do this when you measure risk versus reward.

I hate to say this, but you probably just got really lucky. By all means keep trading if you can afford the loss. You will see soon enough why everyone does not do it.

**KTP** · 03-12-2009, 11:00 AM

Originally posted by rizzmo View Post

$1,500 in bank @ 5%APY for 10 days = ~$2.09 (rounding up)
$1,500 in bank @ 5%APY for 360 days (1 yr) = ~$75
$1,500 in bank @ 5%APY for 3,168 days (8 yrs 8 months) = ~$660
Day trading for 10 days = $660

$1500 on black for 30 seconds = $1500 profit

beat that!

**feh** · 03-12-2009, 11:33 AM

Originally posted by rizzmo View Post

I wanted to start a thread on day trading. I believe this is reasonable idea for a people in the following situation.

-Already max out on 401k for retirement and not looking to put more income towards this goal.
-Have a fully funded emergency fund.
-Have no debt, with the exception of a reasonable mortgage.
-Can afford to lose the funds used in trading.
-Has a high tolerance for risk (mentally ok with loss)
-Does not use margin for trading (equates to using only money you have)
-Tax liability is estimated, then taken from gains and deposited into a account setup to hold monies for tax liability (preferably on a per trade basis)

Bearing a person meets these requirements I really cannot see a downside to trading short term in the market. Currently the market is way down, making stocks in good companies affordable. Volatility is high so there is a good chance of significant movement. I am curious to other thoughts and opinions on this. Thanks in advance for input.

I find it interesting that you could use pretty much the same criteria for money you'd be willing to use for gambling. That's not surprising - it's pretty much the same thing.

With stocks as cheap as they are right now, I think it's the perfect time to buy (as much as you can) and hold; not day trade.

**tripods68** · 03-12-2009, 12:04 PM

I'm with BA, I am too a "swing trader" using technical and charts. But i will hold certain stocks long term based on financial soundness from time to time. I just bought GE at $8.50 this week on "wait and hold" approach. I'm the money thus far.

**disneysteve** · 03-12-2009, 01:04 PM

Originally posted by feh View Post

I find it interesting that you could use pretty much the same criteria for money you'd be willing to use for gambling. That's not surprising - it's pretty much the same thing.

I understand the tendency to equate day-trading with gambling, but being a gambler, the analogy always annoys me. When I sit down at a blackjack table (which I happened to have done just 2 hours ago), I know EXACTLY what my odds are as they are mathematically pre-determined. It doesn't matter what the Fed chairman says today. It doesn't matter what happens to the price of oil. It doesn't matter if one country ending in -stan attacks some other country of a similar name. The odds of the game never change. Of course, I also know that the house has the edge no matter what, but I know that their edge is only 0.6% if I play properly. The same can not be said for the stock market. Dozens of variables can influence the price movements in the market, some are somewhat predictable. others aren't. The other problem with the gambling analogy is it totally depends on what game of chance you choose to play. At a slot machine, the house edge might be as much as 15%. At roulette, it can be over 5%. Buy a lottery ticket and the odds of winning are infinitesimally small, so not all gambles are equal.

**feh** · 03-12-2009, 01:19 PM

Originally posted by disneysteve View Post

I understand the tendency to equate day-trading with gambling, but being a gambler, the analogy always annoys me. When I sit down at a blackjack table (which I happened to have done just 2 hours ago), I know EXACTLY what my odds are as they are mathematically pre-determined. It doesn't matter what the Fed chairman says today. It doesn't matter what happens to the price of oil. It doesn't matter if one country ending in -stan attacks some other country of a similar name. The odds of the game never change. Of course, I also know that the house has the edge no matter what, but I know that their edge is only 0.6% if I play properly. The same can not be said for the stock market. Dozens of variables can influence the price movements in the market, some are somewhat predictable. others aren't. The other problem with the gambling analogy is it totally depends on what game of chance you choose to play. At a slot machine, the house edge might be as much as 15%. At roulette, it can be over 5%. Buy a lottery ticket and the odds of winning are infinitesimally small, so not all gambles are equal.

I'm a gambler myself, and I also stick to the low house-edge games such as BJ and craps.

Of course, the house edge is .6% in the long run. You won't lose .6% of your stack every session; some sessions you'll win, some you'll lose.

I realize it's not a perfect analogy; the gist of my post was that potential gains from day trading are based on chance, just as they are at a craps table.

**tripods68** · 03-12-2009, 01:46 PM

We all agree day-trading = gambling

**blankcheck** · 03-12-2009, 02:13 PM

Personally I prefer sitting at the poker table with expendable cash. I can see and talk to the people that are taking my money; I can calculate pot odds, estimate true odds within a certain range, adjust as the cards are dealt, and get a sympathy handshake for a bad beat.

**KTP** · 03-12-2009, 02:57 PM

Actually, most of the casinos where I play, a bad beat gets you a lot more than a handshake. The loser usually gets upwards of 20,000 from a pot and the winner and rest of the players also get a large amount.

Day Trading: Good or Bad?