Eric,
I completely agree that a trader should entertain any system/methodology that could possibly appreciate significantly his/her return. Nonetheless, part of being able to persevere downturns as a trader, is the absolute need to hedge risk. The biggest risk a trader faces is the loss of trading capital. Forget not making money on a day or two, or losing bad on a horrific day, but having gap losses eat into your capital is like losing lifeblood.
If you started with 100K and had an ORCL loss of 25 percent on some $50buck stock that got halved on you, you would be a 75k. You now need a 40ish% return to make back your 25% loss, let alone the opportunities missed. In a sideways or down market, you can often buy them back cheaper. Ask anyone who bought stocks last nite at the close and was facing a -120 open today. That it rallied to close positive should not be reason to take stocks home. You could have had Dell down 3 at the open even though it closed up 3 or so from where it closed last nite. The difference is 6 or 3 points, a 100% difference....
Most day traders will say that the returns justify the extra risk until they have stock continuously fade on them day after day after day, or a gap loser , even with good companies like ORCL, OXHP, WDC, SEG, etc....
The problem with taking stocks home is it is entirely out of your control. During the trading session, you can decide kick out a stock for a 1/2 or 5/8 or even a larger loss if you let it get away. And doing so is always the right move. The stock did not do what you bought it to do....say goodbye. But you have no control of what the first print is going to be the next day.
Clearly if the stock is good , you can buy it back the next day. You might pay up 1/4 or 3/8 (or a point on the dell, intcs of the world) but consider it insurance. You are hedging risk.
Again, I am not saying this as though I know all, but I know lots of people on Wall Street. Most of my freinds, family, associates, besides my employees and peers are Wall streeters. The ones I know who haven't made it or have left the industry have done so for two reasons, 1)burn out and 2) lack of discipline in trading strategy. I think these are the only two reasons traders leave the business,unless they are just poor traders.
Most traders are good traders. Its not rocket science. Especially in an up market....the ones who did not persevere are those that did not have discipline in selling them at day's end. Soon they are talking the fundamentals an dhow ORCL is really a great company. when you hear that, you know they are done.
We have all done it. You shoot for 3/8s and 1/2 on the upside and chew on 2 point losses...you shit like an elephant and eat like a bird. The smart ones learn from this and take their lumps small.
I have seen traders do very, very well taking stocks home. but they do it with discipline and the discipline is that at the open they sell, one way or the other, that they aren't investors, but overnight traders and assume the risks/rewards of that. If they get a gap loser, the y kick it out first thing.
As well, we probably don't hear much from those traders who did take stocks home time and time again because they probably crapped out and no longer frequent these boards.
The clearing defining your strategy as a trader and adheing to the dicipline in your strategy is critical.
regards,
steve@yamner.com |
