Is day trading for suckers?
In short, yes. But that doesn’t mean you shouldn’t try to learn how.
Let me explain.
Eddy Elfenbein caused quite a stir this weekend with his blog post “Day Trading Is a Sucker’s Game.” He says:
“Now more than ever, day trading is a fool’s errand. If you were ever tempted to enter the fray, recognize once and for all that those banks of computers chugging away at their algorithms have you hopelessly outclassed. There’s simply no way an individual human being can compete against a fleet of CPUs that rivals NASA’s. Do not, I repeat, do not try it. You will lose.”
Other bloggers like Noah Smith of Noahpinion have joined the conversation too (as have his very active, mostly intelligent commenters). Smith warns “testosterone-junkie” day traders that high-frequency trading has essentially killed “their dreams of outwitting the world and landing that big score.”
Now let me make it clear: I am not a day trader, and don’t see myself becoming one. As Brian Lund points out, day trading as a career is the vocation of the truly obsessed, and only the truly skilled succeed.
“In fact, most successful day traders will quietly say (or sometimes not so quietly say) ‘there’s the cry of the loser,’ when they hear someone complain that they lost money because of HFT’s.”
And it’s true, day traders at that level are rare. But I don’t think that the day trader bashing that’s going on right now should deter people from actively trading. It should, however, deter them from biting off more than they can chew.
Just drawing from my own experience working with all kinds of investing and trading advisors here at InvestorPlace — most of whom advise “average Joe” investors and traders — I’ve certainly seen customer complaints from people who obviously signed up for a style of trading they didn’t really understand and weren’t ready for — and their portfolios suffered.
What seems to separate the losers from the winners is their ability to adhere to a disciplined system — sensible allocations, consistent position sizing and planning your exit, for example — all skills successful day traders have, but that are also essential to longer-term traders.
So if you really do want to try your hand at day trading, you shouldn’t just dive in. Perhaps use swing trading to work your way up. Or maybe just allocate a portion of your portfolio to learning to trade. Even Richard Band, one of InvestorPlace’s most conservative retirement advisors, will recommend options once in a while for those with a more adventurous bent.
But if you think you can beat the high-frequency trading systems without first learning your trading ABCs, then you really are a sucker.
Carla Lake is an Assistant Managing Editor at Investorplace Media.