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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Kenya AA who wrote (53313)	3/14/1999 2:12:00 PM
From: VICTORIA GATE, MD	Read Replies (2) \| Respond to of 97611

Reel in profits from quick-twitch stock picking by David Becker Don Roberts may look like a friendly, mild-mannered engineering graduate, but he's actually a member of one of the most dangerous fringe groups in American society today. He's a successful day trader. That makes him a financially lethal inspiration for legions of amateur investors, the majority of whom will lose money in the frenzied world of day trading. Roberts knows this. In fact, he feels a little guilty about telling his story to a reporter, knowing that the resulting article will entice many would-be tycoons to try—and fail—to follow in his footsteps. "People hear about someone like me, and they think there's all this easy money out there waiting for them to grab it," he says. "The truth is that day trading is really difficult. Most of the studies I've seen say that nine out of 10 people fail within a year." For the remaining 10 percent, however, life can be pretty sweet. A full-time trader for little more than a year, 28-year-old Roberts has already converted his modest savings from various grad student jobs into a tidy seven-figure fortune. (He declines to offer an exact figure.) He's given up student housing to reside at an Emeryville marina aboard his newly purchased 57-foot ketch, which he dubbed "Trader." He already has retirement figured out. "I figure by August I'll have made enough money to invest it and live off the income," he says. "I'll give it to a good hedge fund manager, finish fixing up the boat and go sailing all over the world." Not bad for a guy who never took a business or finance course in his life and makes a point of ignoring the advice of professional money managers and institutional investors. "I've met a lot of MBA people, and they really don't know shit about how the market works compared with a good day trader," he says. "The mutual funds managers, I really don't have any respect for them. They're completely out of touch with the way the market works now." The way the market works now—at least for Roberts, whose routine is fairly typical of a serious day trader—is that you spend all day glued to your computer, relying on online brokerages and various financial news and chat services to constantly track tiny fluctuations in stock values and instantly execute buy and sell orders. The term "day trader" is sometimes construed to apply only to the most hyperactive of the new breed of individual investors, the "scalpers" who make their money by exploiting second-by-second differences in ask and bid prices and use special brokerage rooms for access to instantaneous transactions and data. Most of the folks who call themselves day traders and haunt the numerous day trader chat rooms on the Web are more like Roberts, however. They work from home, using their PCs to utilize online brokers and other Internet resources. They hold on to stocks anywhere from a few minutes to a few days. And they're constantly sifting through a sea of Internet-delivered data for market intelligence that will help them make the right move. Roberts' day usually begins around 5 a.m., an hour before the New York markets open. He boots up his PC, connects to his broker and logs on to his preferred day trader chat room. For the rest of the day, his eyes dart back and forth between the two monitors hooked up to his PC and packed into the cramped cabin of his floating home. One screen shows a list of the 20 or so stocks Roberts monitors, with price and volume numbers constantly updated. Corners of the screen show Level 2 activity—real time updates of NASDAQ bidding action—and moving line charts that record general market activity and specific stocks Roberts is closely monitoring. The other screen is filled with chat rooms, where he and fellow day traders exchange tips, rumors and sympathy. Until the closing bell clangs on Wall Street, Roberts is pretty much glued to his chair, especially if he has a big chunk of money in the market. Even a momentary break to grab a Coke or use the head poses risks. "I'm pretty quick if I have to go to the bathroom," he says. "I don't like not being able to watch the screens when I've got money in the market. It can be pretty nerve-racking." Once the market closes, Roberts has a few hours to work on his boat or visit friends before he pores over the day's numbers, running the figures through various statistical models to spot trends and opportunities. He treats day trading like a job, and a tough one at that. "It's not easy to learn," Roberts says. "And even when you have the technical stuff down, it's still really stressful. It's like a roller coaster emotionally. Sometimes it seems like you're always doing things at the wrong time. It screws with your mind." Roberts began playing the market about three years ago, when he was wrapping up work on a graduate degree in nuclear engineering from UC-Berkeley. Using money he had saved from odd jobs, he opened an account at an online brokerage and started making occasional trades. He did well enough to turn trading into a full-time job when he graduated last year. "I was deciding whether it was time to look for a job or stay in grad school when I started trading," he says. "I had heard a lot about trading online, and I thought I had enough of an analytical mind that I could make it work. "I figured this is good money, I'm working for myself, and I work when and where I want to." Roberts researched the market and various trading theories exhaustively—his library is an intriguing mix of navigation charts and market analysis texts. He started off making small trades and building on his successes. And when he made bad choices, he tried to learn from them. "I lost everything at one point," he says. "I'd never failed at anything before, so I didn't give up. I started keeping a diary and really tried to analyze what I was doing wrong." Roberts learned to invest based on risk assessment—when a particular stock and the market in general are moving in predictable patterns, the sharp-eyed investor can reliably find opportune times to buy, sell and short. It's an approach Roberts is especially keen on, given his engineering background. "I'm a very analytical person," he says. "That's what you need to succeed as a day trader. If you evaluate the risk constantly and only get in at the low-risk points, you're going to do well. "I'm not buying today, for instance, because the risk is high. I know the market is going to act funny tomorrow because it's a short trading day before a long weekend. A lot of people are going to want to cash out." And the key to evaluating risk is doing your homework. Roberts trades only from a list of a dozen or so companies—mostly Internet and high-tech firms, because of their volatility—each of which he's continually analyzing. "I do one or two hours of research every night," he says. "I really prepare for the trading day. "A lot of people just jump on anything that's moving. They don't even know what the company is, just the symbol. That's the wrong way to trade. You have to have a reason to buy." Roberts also uses a fair amount of psychology to better understand the actions of other traders and better control his own. By developing a feel for the way other traders react emotionally to market swings, he can better predict when a stock will rebound or dip. "You look at the numbers constantly," Roberts says, "but you also have to understand human emotion and how it effects the market. Panic and greed—that's what gets people all the time. That's what drives the market, and you have to learn to anticipate it." And you have to learn to control it in yourself. "There are certain rules that if a trader follows, they should do really well," Roberts says. "Psychologically, though, it's hard to follow the rules. There's a temptation to take the quick profit or to hang in too long. "The hardest thing is to admit it when you're wrong and cut your losses. Most people don't like to admit they made a mistake and take a small loss. They hang on, and the small loss becomes a big loss." Even Roberts has trouble following some of the rules, such as his no-regrets policy about getting out of the market at sensible intervals and not second-guessing yourself later. He chastises himself several times during the day as he watches Lycos, which he sold the previous day for a decent profit, tick up even higher. "Man, oh man, I should have just held," he grumbles. "I could have made $100,000 more today." Roberts also learned the hard way the importance of reliable equipment and service. He started out using one of the big mass-market online brokers but found service too unreliable. "It got more frustrating the more trading I did," he says. "I'd be on hold with them when I couldn't log on, just watching my money fly out the window." Now he pays $200 a month, plus transaction fees, to use a small broker that allows him to connect directly to their server. (His one condition for appearing in TechWeek was that we not name the service, for fear of attracting a rush of customers). He also has a range of backup systems to bolster his PC and wireless modem setup. "The worst thing is when the computer crashes. I've lost a lot of money waiting for this thing to reboot." Chat rooms can be even more unreliable than computer equipment. While day trader discussion forums can be a valuable source of tips and tricks, they can also be a snake pit of shills and would-be inside traders. "There's a lot of manipulation that goes on in the chat rooms," Roberts says. "You have to know who you're dealing with. There's a lot of hype and a lot of creeps you shouldn't listen to, but there's also good stuff. You just have to have a very powerful BS detector." But then that's more or less the nature of the Internet, the grand communications experiment that made it possible for someone like Roberts, who's never even been near a Wall Street firm, to rake in a fortune from the stock market. "To get the kind of information I rely on 10 years ago, I probably would have had to pay $10,000 a month for a special news service feed," Roberts says. "Now I get it for free from the Internet. "Information is power. That's what this is all based on."