Everywhere I look, everyone hates day trading. The web is replete with financial writers warning you about the “dangers” of day trading your account and the fact that 95% of retail traders who try it lose money. That may all be true. But I am here to tell you that day trading is not only great, but probably the safest way to invest your money.
Of course you will have to forget everything that you’ve been taught about the subject.
First let’s look at investors. Charlie Munger who is Warren Buffett’s investing partner is famous for saying that if you can’t stand the idea of losing 50% of your capital you shouldn’t be in stocks.
I don’t know about you, but I can’t stand the idea of losing more than 20% of my money, much less 50% and I bet that’s true for 99% of you which is why 99% of retail investors never, ever get returns close to the market averages. Unlike Munger and Buffett you will not hold your ground when the stock are plunging. Most likely you will sell the bottom and buy the top because long term investing is actually a stomach churning affair and few people have the fortitude to stick with it.
Now let’s look at my day trading account. Since June of this year I made 539 trades for an 11% on my account and drawdown of -3% of my equity. I also paid out about 4.5% of my equity in commissions (the 11% is NET of all costs) making Drew Niv very happy. In our BK master account the numbers are a little different but the tone is the same. Since the start of the year we made 5.0% with drawdown of 1.5% and paid out about 2% in commissions making 234 trades.
So I trade a lot. I pay a ton of commission and yet I am able to produce steady returns losing less than 3% of equity MAX so far this year. (And this is true not just of me, but all the top traders in my room who follow our trading protocol).
How is all this possible? I should be bankrupt by now or least should have turned over all my profits to my broker with all that mindless trading I am doing.
Its not only possible, but highly probable if you stop looking at day trading as some get rich scheme and start treating it like a long term investment strategy that delivers absolute returns in any kind of market environment. To do that you have stop thinking like a lottery junkie and start thinking like an insurance company.
What do insurance companies do? They chop up risk into tiny increments. They could care less about making profits and they spend all their time managing risks (mainly by figuring out how they can deny paying you your claims). That’s essentially what we do in chat room. We trade tiny. We could care less about making profits ( like insurance premiums they come to us naturally if we are properly positioned) and we spend all our time trying to eliminate risks so that we can avoid stops as much as possible.
The problem with trading is most people want a very easy no effort process and very exciting results. The pitch of every signal service out there is “Set it and Forget It and watch the profits roll in”. The reality is the exact opposite. Day trading is a very intense highly focused process with very boring results. You make 10 to 20 basis points a day and you are doing a good job. Once you begin to understand that you can become a successful day trader and make money in any market environment.