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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: Dave O. who wrote (3786)	9/11/1999 5:11:00 PM
From: Matthew L. Jones	Respond to of 18137

SI Daytrading Thread, I probably opened up this can of worms by my editorializing. Therefore, please allow me a further clarification. And so you will know up front, these comments are not directed at you, Dave, or at anyone in particular (although I've had more response to this post than any other post since I joined SI) but to the thread in general. 1. Personal responsibility. I couldn't agree more with those of you who are quick to point out that each of us should take responsibility for our own actions. I remember to this day a trade I made where I bought 500 shares of YHOO at the close on a Friday (Monday was the pay date for the split and I was long 1000 shares at the open). I was convinced having studied charts of splits that this was going to be a home run. Monday the stock traded up in pre-open and I had my chance to get out with a profit. At the open it gapped down and never looked back. Somewhere in the slide (I added to my stupidity and stayed long) Koogle and Soft Bank of Japan (the two largest share holders) within an hour of each other sold 11.5 million shares at the market. I wound up liquidating at a huge loss and I blamed the "manipulated stock market" and "insider selling" and the investment bank that block dumped all the shares at once to crush the stock (so they could buy back more shares for the same money). But the truth is, it was my fault. I put on a stupid and risky trade, then fear set in and I broke my own trading rules and rode it into the ground. I over extended in the purchase (after all I was only going to own the stuff for about 15 minutes) and it ultimately cost me over $30K! IT WAS MY FAULT. IT WAS NOT DAY TRADING'S FAULT. IT WAS MY MONEY, TOO. IN ONE STUPID TRADE I LOST MORE THAN I HAD MADE IN THE PREVIOUS 3 MONTHS! These people are responsible for their own decisions as well. However, having said that, let me also say this: 2) Contributing factors. In my previous business life (pre-daytrading) my transmission franchises won National Top Gun sales awards 12 times. I developed sales procedures used by three national transmission chains and trained sales personnel (not to mention doing a lot of selling myself). Many of you may not know it, but the transmission industry is highly sales oriented. The average customer has no idea just how sales oriented it is. But with average repairs in the range of $1500 you can bet that sales is everything in that business. Having trained and retrained all manner of salesmen (from car salesmen, to siding salesmen, to home improvement salesmen, to advertising salesmen) I have learned to spot the ethical salesmen and sales systems in an instant. THE FOLLOWING IS MERELY MY OPINION ALTHOUGH IT WILL TAKE SUBSTANTIAL AMOUNT OF CONTRARY EVIDENCE TO CHANGE IT: I talked to Harvey Houtkin on the phone while trying to select a direct access brokerage. He was touting his own program as one might expect. He was the most sleazy, pushy, arrogant, and crooked person I have had the misfortune of talking to in this entire industry. I wouldn't buy a used car from him. Much less turn over my family's future to a career trading his system. I read his book (The SOES Bandit) which is the most self promoting, unashamedly sales oriented, useless book I have in my fairly extensive library. It is close to the Wade Cook books in its salesmanship, but Wade doesn't hold a candle to Harvey's arrogance. I watched him use the senseless tragedy in Atlanta to sell his own day trading shops. I sat there hardly able to believe my own eyes and ears at the utter callousness of this man. Having said all of that, I would summarize my point by this. I've watched with real compassion while the news media interviewed some poor (at least now) idiot who should have never been allowed to trade at the level they did. If they were doing it at home, I can see how they could have consistently made poor choices which ultimately were their undoing, however, trading from the professionally overseen, day trading super centers one would reasonably assume that there would at least be the attempt of intervention and perhaps training or retraining of the cronic losing trader, both in terms of strategies and risk and money management. The fact is that there is neither, but instead a carefully designed operation which encourages frequent trading (commission and seat fees are routinely designed to wash out the infrequent trader) and involves little if any oversight to the beginning trader. Some of these firms allow (by using very questionable legal maneuvering) their "partners" to trade on a 10:1 margin ratio in de-facto violation of Regulation T. The sales pitches used by these firms are unbelievable! If the transmission industry had used such blatantly false and misleading information to sell transmission repairs, we would have had every State Attorney General in the country intervening (and rightly so). For some of the hot house traders to sit there and with a straight face support the actions of these shady centers is astounding to me. Don't get me wrong. I think that this is truly the best business on earth. I love it (except when I'm losing)! And in spite of some of these day trading firms a small number of very sharp and very hard working traders have emerged and I applaud them. But, let's be real here. THE EMPEROR HAS NO CLOTHES ON! You can't defend these firms-- be serious! Matt

To: Dave O. who wrote (3786)	9/12/1999 2:01:00 PM
From: Don Pueblo	Read Replies (2) \| Respond to of 18137

In the end you can't control the behavior and decisions of people. Actually, the BD (broker/dealer) CAN control the behavior of his clients. A BD has a fiduciary responsibility to do so. A BD can close anybody down in a flash, give them their money, and show them the door. Any client that sued a BD under the conditions you describe would lose. "Self-trading" houses are highly regulated, just like all other brokerage firms. The NASD has Rules of Fair Practice. One of these is recommending speculation without finding out the customer's financial situation and being assured that the customer can bear the risk. Obviously this is why day trading firms have a rather extensive disclaimer policy. They try to legalese out of any responsibility they might get sued for. Where's the line? Who knows. But the place where I used to trade was a small house, and the broker really had legitimate concern for the well-being of his clients. He was (and is) also a very successful day trader. He showed me everything he does for free. An ethical BD would never do anything that would jeopardize his license. It seems to me that the discussion about what is "right" or "wrong" or "good" or "bad" can never be resolved without addressing the specific person that is contemplating jumping into day trading. One person may have an overwhelming compulsion to turn a losing trade into a winning one by continuing to trade the same stock "until I get my money back". Somebody who never trades the same stock twice wouldn't have much use for a five thousand dollar seminar that was all about how to avoid trading the same stock twice. It's the trader, not the strategy. When I used to train people, the hardest part was getting an understanding of their bad habits and then getting them to stop doing the bad stuff. One guy would be totally fine until somebody else yelled out some stock was running and then he would just buy it without looking. Had I not been sitting next to him, I probably never would have figured that out. Another guy adamantly refused to look at the risk/reward aspect of a trade. Eventually I figured out that he understood everything about day trading perfectly except he couldn't do the fractions to decimals conversion. He had no way of calculating his risk and reward, and therefore he paid no attention to it. It took me 3 days just to find out what his objection to calculating risk and reward was. Think he would have brought it up in the question and answer period at the $5,000 seminar? No way. I have a big piece of paper in a frame on the wall right above my computer. It says; Rule #1: Let the stock tell you what it wants to do. Let the stock movement fit your strategy, don't try to make your strategy fit the stock. This one single rule (and I'm pretty proud of it) has been the difference for me personally. The potential problems with a strategy are: 1. It doesn't work well 2. You change it before you do it 3. Both of the above