April 26, 1999
Day traders make mark on market
Cynthia Vespereny
Stefan Cooke felt like he'd been run over by a Brink's truck.
He'd lost $25,000 -- half of his initial investment -- on bad bets
in the stock market after making the bold decision to become a
day trader.
The experience was a trial by fire, according to Cooke, a
former marketing executive. But three months after the disaster,
he was the victor -- with the market returning his lost money
and more.
Three and a half years later, Cooke remains in the game, trading
a $250,000 account from his home.
Cooke, 47, is among thousands who have become day traders,
throwing away traditional buy-and-hold theories to profit from
volatility in the stock market.
They usually don't hold stocks overnight and take profits on
price increases of as little as 1/16 point, trading large blocks to
fatten their take. Holding out for more can be risky.
"If it goes against me 1/8 of a point, I'm out. I've learned to be
pretty strict," said Denise Mense, 36, of Lake Sherwood in
Warren County. She quit her job managing a real estate office in
November to become a day trader.
So far, she said, she's clearing $1,000 a month and is aiming for
$50,000 a year.
Cooke, of the Crystal Lake Park area near Frontenac, won't
disclose how much he makes a year, though he said his biggest
take in a single day was $20,000.
He trades on margin, using borrowed money, as most day
traders do. They can double their capital with a margin account.
The possibility of big profits in a matter of minutes is irresistible,
day traders often say. So is the sheer thrill of day trading.
"I love the competition, and I love to take the guy on the other
half of the trade to the cleaners," said Wayne Nelson, a former
broker with Merrill Lynch.
Nelson, of the western Missouri town of Warrensburg, often
trades 5,000 to 8,000 shares at a time.
"My particular strategy is to trade on a very thin margin and
make the money on volume," he said. "I may only make 50
cents to $1 on a particular stock, but if I traded 1,000 shares,
that's $500 to $1,000."
The growing number of such traders recently prompted the
National Association of Securities Dealers to propose that
day-trading firms advise clients against using funds such as
retirement money and second mortgages for trades and to warn
of day-trading risks.
Just ask Wayne Schulte of St. Peters, who started day trading
earlier this year.
"I bought some stocks and they turned out to be crummy. It's
been downhill ever since," said Schulte, 51, who bought high
and sold low.
Though his losses totaled just $3,000, he cut back on trading
and is focusing on his real estate appraisal business again.
A day trader should start with a minimum investment of
$100,000, according to Bill Lauderback, a spokesman for the
Electronic Traders Association, an industry group based in
Austin, Texas.
"Generally, they can expect to lose $15,000 to $20,000 in the
first three to five months," Lauderback said. "It's extremely
high-risk. A wrong keystroke can be very expensive."
Among popular day-trading firms, A.B. Watley requires
$20,000 to open an account, while MB Trading requires
$5,000. The firms offer point-and-click order execution, plus
charts and Nasdaq Level 2 quotes, listing market makers and
bid and ask prices for stocks.
Despite horror stories of amateurs clicking away their savings,
it's not unusual for a day trader to pull in a six-figure salary.
"I grew up thinking you have to work really hard all day to
make a lot of money," said Andrew Ashley, 31, who quit
farming in Chesterfield two years ago for trading.
On a recent day, he said, he made $1,700 in an hour, then
spent the rest of the day running errands with his wife.
How much has Ashley made in trading?
"I'm not going to farm anymore," he responded simply.
The Electronic Traders Association estimates there are 5,000
full-time day traders, accounting for 15 percent of the Nasdaq's
daily volume.
Day traders contacted by the Business Journal said they know
of only about a dozen others here, with some saying the area is
slow to notice advances in trading technology.
A handful of local companies are noticing, however, and
complain that day traders fuel volatility in their stock.
"Our stock has been bouncing between 30 and 35 (dollars per
share) like a yo-yo," said Dennis Jones, chairman of Jones
Pharma, who installed a computer screen at his desk to monitor
trades.
"I believe it is the day traders doing that. The moves are
accentuated by small traders."
At Express Scripts, officials also have day trading on their
radar.
"We probably saw it the day we made the Internet
announcement," said investor relations head Diana Baumohl,
referring to plans to launch a Web site to serve as an online
drugstore and another to provide drug information.
"I would speculate that a lot of that was due to day traders,"
Baumohl said. She noted the company's stock price rocketed
more than 30 percent after the announcement, and volume rose
dramatically.
But day traders counter it's too easy to blame them for volatility.
"There is a lot of bashing of day traders," said Cooke, who runs
IPS Technologies, a custom software firm, when the market is
closed.
Cooke, who developed SortWizard, stock-screening software
for day traders, also is riled by comparisons between gambling
and day trading, which he considers a searing test of wit and
skill.
"Trading will bring to the forefront all of your weaknesses," said
Cooke, citing discipline, tenacity, management skills and
psychological issues.
"It will teach ... in a very painful way, and that's through your
pocketbook." -An article appearing in the St. Louis Business Journal
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