The markets is really an ironic and sarcastic animal. If you badly need the money, the market will not give it to you. If you take the time and let the market give the money to you, it comes naturally. What do I mean?
A person can never tell when the best trades come. Sure you can follow the markets but there’s a slippage cost of around 2-3% (which is fine of course and is just part of the cost of business as long as you know the reward is at least 6% or better)
A short term trader, especially the underfunded one who has only a time frame of 1-2 weeks has to be perfectly precise in his timing, else he runs the risk of the loss of 1.1% on his commissions round about as well as the price point decreasing. He is usually left to choose buying the volatile stocks if his time frame is short term since the most volatile ones will move within 10-20% upwards or downwards. If he chooses the sleepy ones which provide less price downside but more of a time-related opportunity risk, his 1-2 weeks time frame which will test his patience is over and he’d have to restart again. Even if he’s a very good trader, not all stocks move up as soon as one enters momentum type of stocks. They can pause and consolidate which will spell eternity for the short term trader. To put it bluntly, he is not entering a place where he has house advantage. Odds are not in his favor. He can modify the odds when the market gives the stocks at a sufficient level where downside is more or less covered offering him some rewarding dead cat bounces and such. The reward is skewed in his favor if he day trades this and has sufficient ammunition to have plans A,B,C should his plan not work out. However, because his money is probably margin or cannot last for more than a few weeks, I believe his money is best to be traded not in the equity markets but the currency markets. I used to trade currencies. I sometimes still do. I sometimes think currency markets offer the best opportunities for short term traders. Perhaps if I don’t enjoy fundamental analysis, I would actually just quit equity markets and delve straight to currencies. This is not to say that currency markets don’t need fundamental analysis but rarely would you need such. You just need a macro view, news and a lot of discipline in honing your own technical systems. Psychology will play the largest role in the currency markets.
“Dapat marunong kang mag budget, kung hindi mauubos ka.”
Volatility comes during short term bottoms and short term tops. Activity is plenty during capitulation and exhaustion. This is not to say that one doesn’t make money entering where speculation is high and alive. In fact, short term traders will trade the explosive moves and thank everyone if we can have this kind of volatility all day long. Hence, these traders naturally gravitate to scalp for quick returns and do all types of strategies over and over again. Many currency traders who are disciplined make a good living in trading such volatile creatures. I do think the short term traders should go to currencies. You’re setting yourself up for disappointment when you hand over your money and assuredly cannot handle a loss in the short term. The people who actually make money in the short term and the long term are people who have an understanding of the charts but never insist on that chart moving up quickly to the target price within the next 3 days. It can happen but it can also not happen. It doesn’t have to matter. You’d end up over trading and paying so much commissions so the short term traders should play their best edge in currencies where such strategies are best employed. You can make 400% returns on your overall portfolio even with just scalping. I made that in 3 months but I also lost a huge part of it with leverage. I don’t even trade currencies full time. Sometimes, distancing myself away from the screens could be the reason of the success. Discipline is your important rule. 🙂
Let me address that casino-loving animal inherent within each one of you. Whenever you trade, there’s always a risk. You always end up being right or wrong in the short term. Other people prefer to compare the “short term” arena as a casino because of the “randomness” of their bet’s outcome in the next day. Even all the technical analysis doesn’t ensure a breakout continues and follows through. Of course, there are high probability bets where 90% of the time, it follows through so it would be wrong to counter a strong impulsive move in one direction. Perhaps the fundamentals will eventually win in the long run but a short term trader will never care about the fundamentals precisely because he’s trading today with only the next few days’ candlesticks and next week’s candlesticks in mind. So how do you bet when you’re going to casinos with the goal of making money immediately? Well if you go to a table and tell the dealer I need to make a money on the first flip of the card, of course chances are you’re not gonna make it.
To be a killer whale in the markets, professional casino players actually have the best tips to help y.ou out.
Ever heard of Card counting? What is it essentially? It is exactly BETTING when you have positive expectations. Eliminate your “time horizon necessity” of making money in the short term and you will end up becoming more profitable both in the short term and in the long term. The best trading setups probably come 3-4 times a year. The people who come to the markets thinking it’s their lucky day today will not make it. In 240 days, I live for those 3 to 4 days where money made is so easy. Of course, the more the market trends like a bull and because we have a tail wind of strength, even monkeys can throw darts and make money. Seriously, the question one day will not be about what stock to enter but exactly whether you’re just simply in equities or not. It would largely be an asset allocation game where your percent return is determined by your bonds/stocks/cash/commodities/properties/business’ capital allocation. (preferably I hope you chose to overweight in Philippine stocks and Philequity funds.)
Card Counting in Blackjack
If you have seen the film 21 or read the book Bringing Down the House, you already know what I’m talking about. Blackjack players who know how to count cards (and how to exploit that knowledge) can actually get an advantage over the casino. They play for small stakes until the deck contains an unproportionately large number of tens and aces, which gives the player an edge, and then raise the stakes. In doing so, they receive positive expectation …until the casino employees realize what’s going on and toss them out.
Apply the same thing in the markets. Count those cards.
How to be a Killer Whale:
Watch this documentary again and again and again – http://www.bloomberg.com/video/the-player-secrets-of-a-vegas-whale-p5Yp8AANTVeqa1_MXspl5A.html
How to be a Killer Whale:
1.) Be good in math. Respect statistical advantages.
2.) Remain hungry but not a glutton.
3.) Ingrain probability, not certainty.
4.) Do some studying before you go in.
5.) Know the rules of the game.
6.) Collect Free Bets
7.) A player has to be better than the dealer.
8.) Maintain the focus.
9.) If there’s a distraction, if there’s a party, collect your free bets.
10.) The player is in control.
—- Faceless Trader