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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Bill F. who wrote (65743)	8/3/1999 8:56:00 PM
From: Kerry Phineas	Read Replies (3) \| Respond to of 132070

BF, great rap tonight. One issue with the comments on day trading. (I should note that I don't read the wsj, so I don't know what Malkiel said in his article). imo the problem with the insurgence of day trading is the fact that technicals have come to dominate the movement of stocks and, at least in the recent past, fundamentals are much less relevant. In the past (ie 60's early 70's) people complained about the momentum funds and the fact that they'd run up stocks simply because they'd been going up, creating reflexive bubbles where the companies could fake fundamental improvements. Now we've gotten to the point where fundamental improvements aren't even necessary, and as long as there is a spin on results and a good chart the stock will get ramped. I think thats partially the result of day trading. In terms of day trading, people have the perception that there are millions of day traders (read: marks) who will be the guy holding the trading sardine when it finally falls down to earth. As a result, people who otherwise wouldn't take outsize risks (ie people who would have done some fundamental analysis to try to figure out their downside risk) now are willing to make more of their bets based on hype/charts, because there is a "day trader" out there who will be willing to buy in. Issue #2: If efficiencies in the market are defined as having an equal number of buyers and sellers, day traders would fail the test again. This is based on the reputation of day traders as people who buy, and when their stocks go up, they buy more when they have more margin room to do so. So when stocks go up, they buy; introducing only buyers of course doesn't encourage efficiency. When stocks go down, they sell, because they are forced to sell. Being forced to sell creates even greater inefficiencies. Issue #3: Any trading based purely on momentum/TA creates inefficiencies because people are more willing to buy at higher and higher prices and are more willing to sell at lower and lower prices.