I've noticed with some interest a recent spate of scary blogdom articles focused on the current minefield of dangers faced by active retail traders. . . HFT, dark pools, order masking, program trading, prop shop bracket orders, C2C (commercial to commercial ) trading pipelines, and the usual plethora of algo trading games.
Before proceeding further I need to clarify that my own trading timeframe is very short. I prefer daytrading and swing trades of 10 days or less as a means to manage my risk exposure. I also employ longer term option premium decay strategies for a large portion of my account, but these are basically market neutral positions, heavily hedged and yielding a slow but steady rate of return. That's just my comfort level.
Just to put things in perspective I've been trading now for 25 years, with over 35,000 hours sitting in front of my monitors, putting on some 30,000 trades and sucking up about 4000 hours just programming TradeStation code. I've tried most trading platforms and brokers, quite a few of which are no longer in business. I've bought thousands of dollars of trading software, attended seminars, workshops and trade shows and read some 200+ books on trading. I'm old and I'm tired, but I still go at it almost every day for most of the day. And my trading style today is substantially different from the one that I used 2 years ago.
I use a quantitative approach to trading because my education is grounded in mathematics and economics and my brain is hard wired to favor pattern recognition. It's a curse, but I think in algorithms. I pay little attention to fundamentals because I believe price reflects fundamentals, news and sentiment better than any other indicator and there are lots of folks out there with a lot of expensive infrastructure that have access to that intel much quicker than I could ever hope to attain. I've never met a PE that I didn't like.
Recent articles in the popular press (Active Trader magazine, Futures, SFO, and Stocks & Commodities) have noted the failure of many popular trading setups such as naked put selling, trend following, consolidation breakdowns, inside day breakouts, moving average crossovers, MACD zero line crosses, etc.
My reaction . . . So what ???
If you expect market mechanics and market dynamics to remain constant you've got a rude and expensive awakening coming soon. David Varadi had a great timely post on this topic and I recommend every serious trader read it several times. David isn't a daytrader, but the points he makes are salient regardless of your trading timeframe.
Adaptability is the key . . and that implies a willingness to be open to adaptive opportunities. That can translate into finding your own niche away from the daily tsunami of momentum, finding a few stocks/ ETFs that you track and trade in various time frames (my preference), trading different markets, trading a basket, diversifying your tactical approach, trading multiple time frames, joining a prop shop and scalping pennies and nickels with other people's money, OR ???? Adapting is a process. . . an ongoing learning process.
Consider this . . would you want to fly an airplane after watching a few webinars, reading a couple books and attending a seminar or two. Maybe so, but I wouldn't want to be a passenger.
Would you consider performing an appendectomy after watching a few videos on the procedure and attending a workshop on emergency surgical procedures. Sorry, but I wouldn't want to be that patient. Trading for a living is a on-going learning process and here's the shocker . . not everyone makes the cut.
Forget the TV ads and blog banner ads promising risk free 80% returns in the first month of trading. Forget the slick magazine ads promoting expensive seminars and workshops with "guaranteed" trading success. It isn't gonna happen. The only people making money on these deals are the seminar promoters.
For several years I was on the board of directors of the largest trader support group in SoCal with a rotating membership of about 400 traders. The group was mixed and traded a variety of platforms and a variety of products - Forex, futures, options, stocks. Some traded million dollar accounts while others traded with $10,000 or less. It really didn't matter, the idea was to network, share war stories and learn from each other. We had well known speakers come in every month and deliver their perspective on trading. Most of them also sold books, educational CDs, training workshops, etc. We always endeavored to vet speakers before inviting them to assure that we weren't part of a snake oil promotion. That group has now disbanded and the reasons can mostly be traced to lack of commitment, disillusion with realities of trading for a living and an almost universe feeling of ennui. I'm still in contact with a core of about 20 traders from that group who are still plugging away, but that's a pretty high attrition rate.
While TV brokerage ad hype might lead you to believe there are millions of daytraders out there, my own culling of NYSE and NAZ databases shows that there are probably fewer than 150,000 active retail daytraders. And that number is going down. When Cybertrader was shut down the rumor is there were only 3000 accounts. That's not a lot.
Sad to report, but over the past two years I've seen more than a few skilled and experienced traders either blow up their accounts, become so scared of the markets that they could no longer pull the trigger and/or decide they really couldn't make a living trading. The collateral emotional damage including personal anxiety, frustration and feelings of inadequacy and failure that accompany such reversals should not be underestimated. Such fallout can seriously damage a psyche and threaten a marriage and family ties. I've seen it close up.
I've often heard it said that one year of daytrading is the equivalent of 3 years of intensive psychoanalysis. Believe it.
Trading ain't easy and anybody that tells you otherwise is a liar (probably trying to sell you something packaged as an edge). There are a few nuggets out there . . finding the ones that fit with your mindset, capital resources and risk tolerance is a very complicated and time consuming dance. Expect a few missteps and falls along the way.
Hopefully, you don't break your neck.
That's the process of becoming a winner.