Hi All,

Something someone said to me recently bothered me recently... he told me that it is not possible to make money daytrading over the long term. He said that in the short term say up to 12 months this maybe possible but he said that nobody can make money daytrading as a living. He told me that long term investing is the way forward.

Now this chap used to work for Goldman Sachs was a trader working for them. He said that all Hedge Funds operate the same way, they build portfolios and daytrading is a mugs game. I just wanted to know what people thought, is it actually possible to make money daytrading as a long term endeavour?

Would be interested to know your thoughts

BottomDollar

Hi BottomDollar,

This is an interesting question that I have been waiting to get the time to try to answer. I purposefully didn’t answer immediately it was posted just to see what the response was. It probably says a lot that there hasn’t been a reply to it within the first week. This may mean that:-

a) Most winning traders are very modest (generally not my experience);
b) A lot of traders are not winning;
c) No-one is as interested in this question as I am;
d) Everyone is on Easter holidays!

I have been trying to learn this game (trading full time for a living) for the last 10 months and I am not making a profit. Although I do have the luxury of not having to make a profit and have given myself 18 months during which time my objective was just to break even. I have however been trading shares long term and those holdings are significantly in profit.

During the last 10 months my trading has been through an evolution. If you read any of my other posts you may regard me as sceptical – I regard myself as a realist. There is plenty of evidence on this site that points to some of the answers. For instance – there have been a significantly large number of system reviews (you can check this out at the related site that lists ALL of the systems reviewed). The general evidence is that not many of these systems provide significant consistent profits on a short term horizon (needed for day trading).

One of my favourite things is something called a Gaussian distribution curve or a normal distribution. I think this supports the oft quoted figures that 90-95% of all traders fail. The scary thing is that the 5-10% who succeed may just be the lucky ones at the tail end of this normal distribution curve (Read Nicholas Taleb – “Fooled by Randomness” of you are interested in this) <<Note to systems manager – could you put a link in to this book on the SFT bookshop from this reference>>.

During my trading evolution I have swung from more long term trading (at the start looking for 1-2 trades per month) to more regular daily system trading and I am now heading back to more longer term strategies. In all the research I have carried out the most consistently quoted successful strategies are those involving long term trend following. My long term share trading experience also supports this.

One could write a thesis trying to answer your post. So, just as a starter some potted answers to your question (which I think is the $64,000 question) may be:-

1. Day trading is definitely not easy and I think the spreads stack the odds against you. Thus the more frequently you trade the greater this effect and the harder it is. (Choosing instruments with high liquidity and the lowest spreads may minimise this effect).

2. Systems type day trading may give you an edge – but that edge is very slim because of above.

3. At this time it is my experience that it is easier to make profits using longer term strategies and that is where my trading education is leading me. However my trading education is far from complete and to crack it in 18 months may be overly optimistic.

4. Currently I think the most significant attributes a trader needs are discipline and patience.

5. I feel I am getting close to the answer – but have been feeling this for the last 3-4 months.

6. I also have the feeling that the answer is going to be something amazingly simple.

7. The whole industry needs a constant stream of day traders to feed the wheels of the market and associated spin-offs (books, DVDs, seminars, services, websites etc.). So there is advantage in encouraging the view that it is easy to make a living out of this profession.

To sum this up – I think there is an element of truth in what your acquaintance has told you. I would never recommend anyone giving up their day job to do this and expecting immediate success. If this happens it is probably just plain old luck! I consider myself fortunate that I have given myself a practical amount of time to succeed at this and continue down my path optimistic that I will get the answer. I also feel I cannot give an answer to your question that adequately sums up what I have learnt in the last 10 months. The above attempt is simply scratching the surface of an enormous iceberg much of which is submerged in an ocean of information overload.

I hope some of my thoughts help you - I'm also interested in other peoples views of this.

M_C

Hello Bottom Dollar and More_Coffee

I normally do not write into any Forums but thought I would reply to your interesting and valid comments.

First of all I am not a full time trader nor am I making bundles of money trading.

In fact trading is a hobby for me in respects of whenever I have any spare time available at home or at work (self employed)
I read up on the subject (Forex only) and do my small trades at the present time.
I do have Meta trader 4 opened all day on my office screen just to observe what the markets are doing.
I normally observe the cable (GBP/USD) and Eur/USD only.
Reason being that I think it is better to stick to two to three currency pairing maximum as the dynamics of each currency pairing is so different.
So better to learn and experience fewer currencies pairs then to demo trade all of them until you have learnt to do so!

Right sorry to sound long winded but the nature of the beast - we humans in trading terms are as follows:
(INCLUDING MYSELF IN THIS CATERGORY).

We see other traders doing well and we think we can do the same.
We think it will only take a few months to learn trading and it would be easy sitting at the desk just trading all day.
We try many indicators released and every system going to gain instant reward.
We pay lots of money for Forex systems that are meant to make our trading easier and actually make us no money.
We get impatient and try trading with real money before we know what we are actually doing.
Once we have lost those trades and the money we try to re coup it, when we should in fact be taking a back step and not trade.
Once we have lost our money and our patience we stop trading and give it a miss.
THIS IS ALL HUMAN NATURE AND TO A CERTAIN EXTENT A LEARNING PROCESS FOR US ALL IN TRADING.
Many of us go through a similar process but many give up on the first hurdle.

I am not saying this is the case with you guys but generally that's what newbie’s do when we start in Forex Trading.


I have studied Forex Trading for about one and a half years, read many books, been to some seminars
And watch countless demonstrations on the PC of whom these scammers will make you get rich with these so called wonder systems.

So here are my own conclusions on the subject:

Do a Forex reset/reboot so to speak and keep an open mind on the following:
Do not do any more trades, just read these books and observe.

It is VERY IMPORTANT you read the following books first of all:

Trend Following: Learn to Make Millions in Up or Down Markets [Paperback]
Michael W. Covel (Author)

High-Probability Trading: Take the Steps to Become a Successful Trader [Hardcover]
Marcel Link
Marcel Link (Author)

The first book 'Trend Following is the most excellent book I have ever read to do with Forex Trading.
On a side note in the book the author quotes a John W Henry (now the owner of Liverpool FC).
John W Henry was long term trader that made tens of millions of dollars with his fund and the book gives the information
On how he started from a humble background in farming and trading Corn futures contracts.
I think most of his trades run for years if I am correct !

This book will basically give you a new mindset to long term trading and the basic fundamentals of it.
The book will also give you an insight and examples of many these long term traders.
After reading this book I basically stopped day trading on my demo account and observed Daily trading only on the two currencies
Pairings I mentioned.

I will not bore you but in its simplest form it takes you to a new level in my opinion.
The book states why day treading can be no good for as you are normally overtrading and you have more chances of losing the trades/money as you are always going into the markets all day many times over (dare I say it but like a gambler).

With long term trading you are trading much less frequently and you have more chances of successfully trading as you are riding the wave (The trend) so to speak according to the book.
But also as that long term trend is either going up or down you have more chances of success as you are trading with the trend over a longer term-it that makes sense.

The second book 'High Probability Trading is very interesting for the following reasons.
This book will give you the set ups on how to trade in its simplest form and states why these off the shelf indicators we waste money on do not work or are not required.

So to sum up the first book will give the confidence and mindset to trade longer time frames/long term trends.
The second book will give the mechanics of what simple tools to use like RSI and MACD set up's that the author has been using for many years with great success.

I totally agree with More_Coffee and the problem with any trading is having the patience and discipline to wait until the right opportunity comes up with the method you are using.

My buy set up on the GBP/USD came up on the 12th of January 2011 and for whatever reason I missed it.
Until now I am still waiting to trade on the cable, so discipline and patience play a major role.
Also execution of the trade plays a big part as fear and doubt kept me out of this trade.

Like More_Coffee said that eureka moment will come to some of us and it is pretty simple to trade successfully.
But we humans over complicate matters.

Have I got the eureka moment?
I think I have by not going into the market until the time is right and sticking to my simple method (not system)
by observing the overall longer trend over a daily/weekly and even monthly period.
But if not I will continue to demo trade until I have become successful in trading.

I hope this helps you.

Regards
M

Hi
I have traded on/off for over 10 years.During this time spreadbetting has become easier
the charts better and pip sread small.
I agree with all comments left, now down to facts.
I only look for 20 pips a day and have reached a level plateau of £20 a pip (1% risk)
i stop when i achieve this and trade part time.
I like ftse around 8am and wall st last hour best.
I also watch silver, cable and eur/usd.
My set up is as follows
ADVANCED CHARTS i use etx
pivot lines
5 ema 19 ema 62 ema
bollinger bands
macd 12 26 7
stochastic
I set alarms on the charts where i expect possible trades
and must have 2 confirmations ie
say market is down to bottom of bollinger band and stochastic
is around 5% i would look for a rebound UPWARDS
sometimes i jump in 2/10 trades,most times i wait for both settings to move upwards
and stochastic to go over 20% 8/10 trades.
I always have a 20 pip stop regardless.
Indices work better for me than currency pairs but have traded aus/usd late at night.
My experience is its better to aim for 4 x 5 pip trades than wait for 1 large trade.
Read up as much as you can but working out what kind of trader you are and what
level of risk your happy with is more important.
I traded at over £100 a pip made a lot and lost a lot and spent a lot of time in the bathroom!!.
Much happier now and don't have the need to sit and watch all day.
Make technology your friend and save your eyesight.
regards Michael
ps my success rate is 80% and stop for the day if i've lost 20 pips.
I also stop when i've hit 20 pips ,sometimes by 8.30am

It sounds like your friend failed at intraday trading and thinks it can't be done.

Of course it can be done you need to learn to adapt and change when the market does and you can prosper.