Day-trading stocks triggers stress in novices
FRIDAY, JULY 30, 1999 5:31 PM
- Reuters
(fixes word in lede)
By Jack Reerink
NEW YORK, July 30 (Reuters) - Technological changes and a bull market in
stocks have created a tribe of people who trade shares all day, but these
newcomers to financial markets may be ill-equipped to deal with the stress of
losing money.
"Most people do not have the right psychological attitude for what it takes," said
Adrienne Laris Toghraie of Trading on Target, a self-described trader's coach who
runs seminars for day traders. "When they lose their hard-earned money they
become self-destructive...and then there are some who take out their gun and
shoot 12 people."
Toghraie was referring to an Atlanta man who on Thursday shot nine people at two
day trading firms after killing his wife and two children. The man, a former chemist
who started trading stocks full-time at the two firms, apparently suffered stock
trading losses, although it is not clear whether this caused him to go on the
shooting rampage, authorities said.
Lured by tales of striking it rich in the stock market, some Americans have quit
their jobs and turned to trading stocks full-time.
But novices should approach stock trading as a business -- with a business plan,
enough capital and discipline -- or they may slip into what Toghraie calls "a
cesspool of losses." In that scenario, stock market losses trigger memories of all
the misfortune a person has suffered in his life and can damage that person's
mental health not to mention his trading, she said.
Day traders are people who buy or sell stocks aiming to profit from small changes
in stock prices during the trading day. They typically close out all their trading
positions at the end of the day, hence the term "day trading." Most novices do not
make money in the first six months to a year, industry sources said.
"The toughest time is the first 6 months or so. It's a learning experience," said
Steve Pavel, who this spring got laid off as a chemical engineer of Houston energy
company Coastal Corp. (NYSE:CGP) and turned full-time day trader averaging
about 20-25 trades a day. "I can see the point where the stress becomes
overpowering, when you try to do things and it doesn't seem to work for a while."
Pavel is one of 4,500 to 5,000 individuals who try to eke out a living this way at the
offices of some 80 day trading firms around the nation, averaging around 35 stock
trades a day. An additional 150,000 to 250,000 people, or 3 percent of all online
investors, average about two trades a day from home through computers with
high-speed Internet connections, industry sources said.
Commodity markets have long known day traders, or "scalpers" as they are
known on futures exchanges. But the phenomenon is relatively new in the equity
markets. High trade commissions and big differences between asking and bid
prices for stocks, or spreads, prevented all but a few people -- professionals
working out of the offices of stock exchange brokers -- to trade this way.
The advent of Internet brokers and alternative stock matching systems, however,
has brought down commissions to as low as $5 a trade and spreads on some
stocks to pennies. This has made day trading within reach for anybody willing to
try his hand at it. People start with as little as $5,000, although individuals who
have a desk and computer screen at day trading firms usually have to put up at
least $35,000.
"Trading is a very active engagement. Profit and loss swings can be significant,"
said Tony Huston, executive vice president of A.B. Watley, Internet Financial
Services Inc. (NASDAQ:IFSX) online brokerage unit. A.B. Watley, which focuses
on day traders who work from home, vets its customers carefully to ensure they
can make good on their trades, Huston said.
Many newcomers, however, are ill-prepared to deal with the stress of taking
losses, which are inevitable for every trader, Toghraie said. The solution is to take
a disciplined, almost mechanical, approach to stock trading and create rules for
when to take losses and profits, she said.
Traders are also wise to inform their families of the ups and downs of their new
profession, or face stress in that area.
"They think every day has to be a winning day, like: 'Did you bring home the
groceries, a pay check?," Pavel said of his family. "It's tough because they don't
see the future of it, they just don't see it producing right now."
((--Jack Reerink/Financial Services Desk (212) 859-1725--))
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