Over the weekend a post came up in my feed a lot. AN ODE TO THE SHORT-TERM TRADER from zenpenny.com.
I did not exactly read it with an open mind but it is one of the better ones. I thought it was going to be another post telling people what they can and cannot do. Usually masked in their excuses and their failures. But it really is about why people fail and Mr. Zen Penny makes valid points.
At the same time, pops up a crop of supposed market mavens who are there to advise these starry eyed traders of the opportunities across short-term strategies.
We have all heard the phrase, every strategy works it just does not work for everyone. I wish more people would understand this and what it means to them. There is a tendency to socialize losses and privatize wins. So what does this really mean? It means that when you lose it is the markets, HFT, the dog barking, your broker, or you have bad luck faults. When you win it is just because of you, it has nothing to do with the type of market we are in or that all systems work in cycles. When your mind works in this way you do not do the work. There is always work to do. No one ever and I mean ever talks about this but you should spend as much time understanding why a trade didn’t work as why it worked. All traders have to ask themselves, what is working right now and give themselves the tools to answer.
A trade is not a success until it is closed out and a trader is not successful until they retire. Money is easy, longevity is not.
They all start the same way. Inspired by a story about how much John Q. trader made last year at the age of 23 trading AAPL stock by simply buying and selling at advantageous trading points.
I would estimate that 105% of traders start because of the money, if not more. Trading can be the greatest job you will ever have. You get to be an “owner” of the company without doing any of the hard stuff. But the money is not why you stay. At some point it is just a number. You need something else to get through the brutal times. And there are many. As Mr. Zen Penny knows, through marketing financial products, is people like the sizzle more than the steak, at least to start. That is the nature of that business.
Flashes in the pan. I do not know of ONE single scalper or trader with a time horizon less than a week who started in the 90s and is still in the game today. Not one.
Once again, this is a game of attrition. The market is a great place because you can wake up each day with unlimited potential but we have limits on time, money, and skill. Learning to lose is one of the hardest lessons. Winning is easy, losing is hard. Failure, defeat, pain, agony are not emotions that you can prevent but rather something you must come to terms with it and use to your advantage. Winning early is not a good thing unless you are disciplined enough to learn from your winners, many are not. One of my favorite quotes from a poster on my High School coach’s stairs to the basement is the harder you work the harder it is to surrender. You do not have to work hard in the short term to make money, especially if you are buying a bull market or selling in a bear market.
Today an entire new crop of traders and gurus has sprouted up utilizing a new means of disseminating trading ideas through Twitter and various other social media venues. Never mind that today’s trading environment is infinitely more difficult than the one that caused the group from the 90s to turn into ghosts.
Trading has always been hard and will always be. But it is a great time to learn. I can tell a lot about a trader by the time they started. Money guides a traders development. Think about it like this, each dollar you make there is like a brick. Each time you have success you build a wall that makes it hard to see other things and it does not make sense to fix something that isn’t broken. It makes sense that every trade is different so you should trade it differently but many do not see the need or understand how. You are forced to continually improve your market awareness and execution skills, that is the real pressure of trading.
Social media is social media. There are great people and shitty people. There are people who talk because they have something to say and their are people who talk to hear themselves talk but social media allows you to engage and find out more. Like with anything in trading, it is not about the tool but how you use it. The tool is the starting point.
Back then you were trading against other retail traders, institutions and some hedge funds. The landscape today? High frequency trading, quantitative zombie machines that are designed to take everything you learned from your favorite trading books and shove them into your rectum until your backside is confused for the reopening of Borders.
I do not know what it is like to trade on the other side of HFT program that receives a rebate. Some forms of it are straight out fraud and I am not sure how they get away from it. But every trade still requires risks. EVERY SINGLE ONE. Before there were HFT there were humans doing similar things to make you pay worse prices. I am not saying it is right but things have not fundamentally changed on that front.
Higher salaries always means volatile pay. You make a mistake, pay cut. Software fails, pay cut. Not disciplined, pay cut. No trades, pay cut. A day can make your week, a week can make your month, and month can make your year, a year can make your career. But you have to be there. Money is made at the expense of others and guess what we all have to spend our time at the bottom but we all have a chance to move up.
As a short-term retail trader, you are a high school football player, without a helmet, in the middle of an NFL game.
This is true, you are never going to have the money, experience, technology that the big boys have. But it has never been cheaper to have a trading business. Commission, software, and communication tools are nearly free. Who cares if your revenues are 4 billion if your expenses are 6 billion. Everyone who wins over a long period of time is good. That means there are opportunities. I would argue that lowering the barrier of entry has been bad for the business overall. There are many traders playing without a helmet but there are ways to get a good helmet. And even though it is the NFL there are times when you are playing the Jets every week.
Like I said, I really liked the article, it was honest, fair, accurate and pretty damn entertaining. It should not be titled an ODE TO THE SHORT-TERM TRADER. By their nature they are always the ones that charge the hill first and the first one up the hill gets the arrows. But give it time and the same article will be written in the context of long term traders. Unless it cycles back by then. There needs to be more talk about execution. Less tools and more understanding of how to use those tools. A road map for adapting to the market. Most people only learn to borrow from the market.
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