I’ve been itching to pen an open letter to defend the love of my life, Day Trading, ever since I came across an apparently popular article online titled “Why I ‘Seriously’ Hate Day Trading”. How dare anyone claim such a thing?! Chances are that the chap behind it tried to play the bittersweet mistress and ended up getting played but, of course, that’s just speculation. Without wishing to fall into the trap of hate myself, I’m not going to make direct reference to the article (although it’s fairly easy to Google it) and I don’t want to tear it apart, piece by piece, but just about everything in it provides sound basis to debate my support for day trading and why I believe it to be a superior method of trading, compared to either swing trading or position-trading, in just about every way. With 8,700 ‘Facebook Likes’ for “Why I ‘Seriously’ Hate Day Trading” at the time of writing, you might ask how I dare attempt to play Devil’s Advocate when my own blog is probably lucky if it gets an average of 8.7 readers, but it’s Christmas time and so I’m going to treat myself. After all, those kinds of stats might provide some answers as to why the majority lose in this game.
> Day trading is not time-intensive, stressful or extremely difficult to make consistent money at.
Well, it isn’t compared to swing trading or position trading at least.
In fact, when I saw the light and moved on from a former existence as a swing trader, it was quite nice to get my life back. I remember the days of checking my 4-hour charts at 10pm at night, desperately hoping I didn’t miss something at 2am, before getting up to check again at 6am, ultimately fretting over nothing, more often than not. It wasn’t ideal having to have some form of working charts in front of me at exactly 10am, 2pm and 6pm on every week-day either. As long as you’re in the market, you’re on the clock and you’re prone to an element of stress unless you’re an emotional void. The beauty about day trading is that once you’ve put the effort in to learn to read the noise, you can genuinely make some good money in a fairly short period of time in the day and then turn your stress off.
> If you get hooked on day trading, you are not going to enter into a game of ‘quantity over quality’.
Not unless you’re an idiot.
I feel personally that most successful traders must be trading a plan of disciplined entries and exits, based on a wealth of back-testing without gaps, regardless of the time frame of their choosing. Why would you trade outside your plan? It doesn’t make any sense – unless you’re in a bout of self-destruction or you’re just bored, perhaps, which is more likely to happen if you’re sitting watching a one-trade-rollercoaster for days on end when trading off the daily. You take a trade when your plan dictates it and there is no waiting for high-probability-trades versus low-probability-trades about it.
> The reality of a day-trader is not a guy who got 2 hours of sleep last night.
I doubt many good day-traders get into it for a Ferrari or because it sounds prestigious to their peers either. Actually, that would likely be a sure-fire way to find yourself alienated pretty quickly. I’ve always thought dogs generally win the popularity contest with the good ones because they’re loyal, they don’t talk and they aren’t interested in money.
The reality is I’m usually in and out of my trades within a 4 to 5 hour period, trading no smaller than the 15 minute time frame so I can leave the screen, and that’s it for the day. It just took some time initially to learn how to do it.
> A top down approach is a good thing.
At last, the day trading hater and I find some common ground here. It is important (but not essential) to have a good understanding of how the charts of higher time frames work, regardless of the time frame of your own niche. In my own style of trading, although neither the direction of the trend nor any news or macroeconomic influence has any significance in the direction I choose to trade at any given time, I think it’s beneficial to see the bigger picture of anything you desire to be good at before you get lost in the detail.
> There is no underlying bias by brokers to get traders hooked on trading as frequently as possible.
A good broker, like any good business, wants low-maintenance, repetitive business. There are very good retail platforms out there now that purely operate as white labels, they make a commission on each trade and would rather traders stick to their own profitable trading plan than to start blind-punting at a higher frequency, only to blow their accounts in quick succession. Sure, you’re likely to pay more in spread and commission charges if you’re day trading, but this doesn’t matter if the goal of a better bottom-line is achieved and, of course, you’ll receive better rebates!
I don’t think any good broker would see a prudent business model as one of employing wide spreads and encouraging a higher trade frequency. Brokers are smart enough to know that the astute day-trader is looking for the lowest trading costs available, as long as the quality of service remains high. The skill of the good broker is to employ good people to hedge its book appropriately and to keep its clients onside.
> It’s unlikely that stop-hunters have any interest in the average day-trader.
I hesitate to make bold statements on this subject as I can’t claim to be a font of all knowledge on the matter but, as a day-trader myself, I can tell you that upon analysis of over 15,000 trades of my own trading method, I can say I decided the best play was probably not to place a stop where it’s likely to get hit.
It’s at this point I can see that our day trading hater has potentially written his article, purely through the eyes of a Price-Action junkie. His website does state that he is “considered ‘The Authority’ on Price Action Trading” after all, which is quite impressive. I’m just the normal one, like Jürgen Klopp.
There might be an argument that stop-hunters are looking for large volume around support and resistance intraday – I really don’t know – but, although I can only speak for myself, I’m not interested in support and resistance when I’m trading the intraday chop, which is what most of the action in intraday charts comprises anyway. And it’s certainly safe to say I’ve never looked at a 15 minute pin bar for an entry!
> It’s unlikely that high-frequency-traders hurt the retail day-trader.
Perhaps there’s lower consistency in the chop of the FX majors now than there was 10 years ago but, at the same time, there’s probably less volatility in it and so it’s swings and roundabouts really. Saying this, I have no idea if the influx of high-frequency-traders has influenced this change anyway. At the end of the day, you can’t look at the chop from a trend-trading perspective. The chop is what it is – a range – which often occurs intraday after there has been a movement one way, before a slight retracement the other way. When the chop is alive, the stats are in your favour to trade the retracement, regardless of what anyone else is doing.
> The term “B.S.” makes me wince.
And regardless of whether you’re day trading, swing-trading or position-trading, you “take risky action in the hope of a desired result”, which is the definition of gambling. It’s not really any different if you’re investing, although at least you can rest assured you won’t get a margin call on that one. You might have heard that good traders look at how much they can lose rather than how much they can win, and I couldn’t agree more. It’s all about astute wagering with the statistics in your favour, accompanied by effective risk-management. Although I don’t ‘seriously’ hate swing-trading by any means, I love working smarter and not harder now as a day-trader than I ever did as a swing-trader.
Now, having completely contradicted myself by tearing our day trading hater’s article apart, piece by piece (no malice intended, just devil’s advocating, of course), it’s probably best I finish on a more positive note by listing the greatest hits of my love for day trading:
> You can avoid the news if you want to.
We all know what happened in Switzerland in January – a difficult one to avoid for those swing trading CHF. Like most market news, it was delivered during the height of the trading day and not during the chop. Fortunately, for a chopper like myself, I was chomping on my breakfast at the time, out of the market, and didn’t lose the house.
> You don’t necessarily need to stress about trend-spotting, trend-changes or any fundamentals really.
To be honest, I rarely know what trend we’re in from one day to the next when I’m trading the ranges and I often trade both sides of it in the same trading session.
> You don’t have to watch the screen, despite popular opinion.
The 15 minute time frame is ideal in many ways. If you’re trading the 5 minute chart then, yes, you’re probably going to have to watch the screen. If you’re trading 4 hour charts, you have to check in every 4 hours. Similarly, if you’re trading 15 minute charts, you have to check in every 15 minutes, but at least it isn’t a never-ending cycle like the 4 hour checks and you can multi-task in the process, especially if you’re female (that’s for you, mother).
> The higher proportion of winning trades is good for the mentality.
A 70% win-ratio as a day-trader feels better than a 45% win-ratio as a swing-trader, regardless of whether the actual financial outcome is identical.
> There is more consistency in the statistics of the daily ranges.
I’m sure a swing-trader would dispute this but, having tried both day trading and swing-trading personally, the overnight range of the FX majors is (without contest) the most consistent performer of any pattern I’ve ever come across in the financial markets.
> You can leave your work at work!
Life is a rollercoaster, you don’t need another one. A few hours a day in the game is enough for me.
> Tighter stops – greater trade sizes – higher rebates.
> I ‘seriously’ love being in the game for those few hours a day.
Aside from Mario Kart on the N64, which is an indisputable classic, I feel very fortunate that I’m a lover of the outdoors and I never got the gaming bug. Day trading to me is my gaming fix. I love being in it for those few hours a day, having to execute accurately, testing myself at the game. I really couldn’t imagine many things worse in trading than sitting on a trade for days, checking in one day to find previous days of accumulated profit wiped out in just a few hours.
Sure, day trading isn’t for everyone, there’s more room for error if you’re trading the longer timeframes, and it’s all very well for me to bang on about my love for day trading – love is blind after all.
