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

To: Bridge Player who wrote (16843)	8/21/2003 8:13:51 AM
From: Eric P	Read Replies (6) \| Respond to of 18137

This caused me to think about a question I have often wondered about. How many traders (of your own acquaintance or your guess as to those in the actual population) do you think are equally comfortable going either short or long? I can't say that I aspire to becoming a professional trader, but would surely like to pick some brains in order to improve my own results. I don't know a single trader acquaintance of mine that is not equally comfortable going either short or long. Trading is trading, and whether you buy to enter a trade, or short to enter the trade should obviously not make a difference. I think the increased difficulty in the markets in recent years, and the resulting reduction in the number of professional traders, is due to a number of factors: 1) Reduced volatility. Currently, the VXN and VIX volatility measures are at their lowest levels in five years. Lower volatility means less stock movement, which means less opportunity. 2) Reduced liquidity. In the glory days of daytrading, you could easily hit a button and instantly buy 1000 shares of a volatile stock at the inside offer price. Now, you are much more likely to end up with only a fraction of the total shares you wanted to buy, at the inside offer price. 3) Decimalization. Professionals are much more likely than the retail public to place non-marketable limit orders, and let the market come to them to fill their orders. As a result, larger spreads are typically good for them (and bad for the retail public at large). Decimalization has reduced the spreads and made it more difficult to succeed for many traders, I think. 4) Elimination of the Idiot. This may be the biggest factor. During the go-go days of the late 1990's and even during 2000, anyone and everyone thought that trading was very easy and bundles could be made by anyone who would only open a stock account and start buying something. This impression brought a huge number of 'sheep' into the markets, and made easy 'marks' for the professional traders to profit from. Unfortunately, all of these sheep have been wiped out with the bear market and so there are fewer easy 'marks' to profit from. Instead, the professionals traders that remain are battling against other professionals, hedge fund managers and institutions (a much more difficult level of competition). 5) Reduced stock prices. Remember the days with QCOM trading at $600 per share? Wow, those were the days. Many, many, many stocks were trading at $100 to $300+ per shares. If you found a good trade candidate, you could hop into it, watch it quickly move up $5 per share, and exit for a nice tidy profit. These days, many of those same stocks are trading for less than $1 per share. Even the the stocks of the remaining viable go-go stocks are trading for ~$20, and you are lucky to see a 20-40 cent move. While this also reflects the reduced volatility, the lower stock prices also reduce the potential profitability of trading with lower per share profits available per trade. While the above are many factors that make trading more difficult, there is at least one factor that is helping traders these days: commission rates. Back in 1999, I was paying $21 per execution for commissions. This cost was paid regardless of whether I executed 2000 shares or 10 shares... Partly due to the demise of many active traders, brokerage firms have had to slash commissions to attract the remaining viable traders that are left. As a result, commissions are only a small fraction of what they used to be, and typically are offered in a cents per share format by most firms catering to professional traders. Traders are now able to buy 500 shares of stock, for example, for as little as $0.80 to $5, instead of the prior fixed rate of $20+ per 'ticket.' Similarly, ECN fees have dropped considerably. During 1999 and 2000, ECN fees were often billed at 1.5 cents per share. Currently, they are typically less than 0.4 cents per share, or even incorporated into the commission rates at no extra charge. Some firms even offer 'pass through' ECN fees, in which they simply pass through the ECN fees and/or rebates to the clients, with no add profit margin built in for the broker. Anyway, a lot has changed in recent years for the professional trader. The above are only a few that come to mind off of the top of my head. I would be interested to hear other factors that have made trading more difficult, or less difficult since the glory days of the market bubble. Comments? -Eric