Hi KM; I also have a "day" job, or actually, an afternoon-evening job. Working two jobs is tough, and it is rare that I get 40 hours of working in a week.
I am pretty sure that I would trade about the same if I quit my day job. But right now, I am not too worried about profitability, and am instead more interested in learning. This means that I can take risks that I couldn't if I were relying on trading alone.
The last few months I have been training myself to trade stocks with higher volatility. The reason for this is that I found that I had peaked out scalping low volatility stocks (like MSFT, INTC and DELL), and my gross (i.e. before commissions) profit per share was not enough to make me feel comfortable about scaling my trading to larger sizes. It was very gratifying, however, to book consistent gross profits against the market. That is the first hurdle of learning to trade.
So, in order to increase my profits per share, and therefore improve my ratio of gross profit to commissions, I have been trading more volatile stocks, RNWK and AMZN. There are many lessons to learn, and I can tell that I am gradually learning them.
Yesterday, I traded GOTO mostly. Unfortunately I went into "wait it out" mode on one trade and lost four dollars (per share). But I made back 3 dollars by correctly scalping sixteenths and eighths.
Thursday, I traded AMZN for 3 hours only. I managed to extract almost two dollars in 34 trades. This was about a nickle per share, and meets my gross profit objective. By the way, the worst trade I had (and also the longest, at 6 minutes, 44 seconds) lost 72 cents, while the best made $1.19. My shortest trade that day was 28 seconds, which made 12 cents.
I can already hear the long term traders saying, "Why bother with scalping such small amounts?" The fact is that there are thousands of ways of making money in the stock market, and most of the people who make money one way, don't know why anyone would choose any other way.
If you have seen a good scalper in action, it is a thing of beauty. He waits for situations. He gets in quickly, and he is out almost immediately. This is what I aspire to. Before I record a trade entry (short or buy) on my trade sheet, I sometimes place a limit order for the profit I expect to get. On stocks more volatile than AMZN, the profit is sometimes made and the trade exited before I have filled out the entry paperwork.
Scalping has an advantage over longer term trading in that it generates massive amounts of statistics on your trading. You can compute your average trade, the standard deviation, and thereby get confidence limits on the question of whether or not you can beat the commissions long term. For this reason, scalping is a lot safer way to learn the market than longer term trading, I think.
The Block office in Seattle used to have a setup where you could see the trades that the other traders made as they made them. This was not particularly useful for "dogging" a scalper, because by the time the order is recorded it is too late to copy it. But you could watch the trading patterns of the other traders, and it was a fascinating way for a beginner to learn. You can identify the trader by the code word for his account, and you could see how many shares of XXXX he was buying or selling. You could also watch what the boys in the Block office in New York and Texas were doing. Even though you didn't know who they were, you could figure out whether they knew what they were doing by watching to see if they made money.
It is called "order flow", and there is a lot of information flying by quickly. Learning to read the order flow takes a couple weeks of practice, by the way, but it is well worth it. My guess is that the order flow is too slow to trade off of, in that by the time you see the traders reverse directions, it is too late. But it is worth it to learn how other people trade. In addition, it is useful to know when all the other traders are selling - maybe they know something you don't, so I would be inclined to leave it in a corner of my display.
The first thing I learned from watching Block order flow, is that the successful scalpers all tended to do the same thing at about the same time. That is, you'd see people buying stocks at the same time, even if they weren't buying the same stocks. This effect is caused by all those traders reacting to a futures move (or a futures non-move...), or hearing news on the trading channel. It was an enlightening experience for me. At first, I saw it as one of those inexplicable things, like seeing a flock of birds all change direction at the same time. But after a while, I began to see what it is the other traders were clueing in on. This took months, by the way. Your reactions have to be fast to scalp - you just cannot hesitate for a split second, otherwise the other scalpers will get in first.
One cool thing about scalping, I think, is that if you later decide to start trading on a longer term, you will have received a great education in execution. In addition to scalpers, the Block office (now an On-line office) also had longer term (multiple hour) position traders. You could see them make a trade, then bring up a chart and try and figure out why they were entering into it. A few of them were quite profitable, but I always felt that their entries lacked the least amount of finesse... But longer term traders don't need to make the last sixteenth, and maybe that's why I'm a scalper. Longer term traders probably shouldn't worry about order entry. "Never miss making a trade due to a sixteenth."
Anyway, sorry for running on. My plan is to continue to hold two jobs until I have successfully scalped the market for a year. That should be long enough to prove my ability in both up and down markets.
Several people who have noted that if they didn't have a day job their trading would change to a style more conservative. If you think of a job as a pile of "capital" that provides an income stream, you can understand that a trader with a job has a larger total "wealth" than the same trader unemployed. So it is natural that if that job went away, they would have to trade smaller due to the loss in "equity".
-- Carl |
