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Why I Don't Day-Trade
by David Van Knapp, author of
SENSIBLE STOCK INVESTING:
How to Pick, Value, and Manage Stocks
and
THE TOP 40 DIVIDEND STOCKS FOR 2010:
How to Generate Wealth or Income from Dividend Stocks
April, 2010
Day traders think in time-frames of seconds, minutes, hours. They often close
out all their positions each night and start over again the next day. Day trading
requires constant attention, because every short time span is significant. Miss a
minute, you may miss the chance of a lifetime.
I read lots of newsletters and blogs just to keep up with the stock investing field.
One of them is called Daily Trader's Alert, written by Sam Collins, a technical
expert at OptionsZone.com. The following is from his column of Wednesday,
March 31, 2010.
I just can't imagine living a life where those are the kinds of things that you feel
every day. That's personal with me, I know a lot of people that crave adrenaline
rushes much more than I do.
But the other thing about that list is, it's all emotional. Stock investing should be
emotion-less, a business. I instinctively resist treating the market as if it were a
person, a wayward child, or a bad dog that "needs a correction," gives you
"anxious moments," and brings you to a point that you can't "take it anymore"
and want to "throw in the towel." I resist the common metaphor of "Mr.
Market," an OCD, ADHD, manic-depressive whose purpose in life is to fake
you out and screw you over.
The market is just that, a market. It is a place for buying and selling, with
thousands of individual stocks being traded (bought and sold) whenever the
market is open. Every stock has its own set of buyers and sellers. The prices of
individual stocks change all the time. The market sets a price for each stock
through the process of trading. Each party to each transaction is trying to gain
the greater return over whatever time-frame they are targeting.
No one can predict, with any consistency, the market's moment-to-moment or
day-to-day movements. Those result from the interactions of thousands of
people, some acting alone and some acting on behalf of institutions, all using
different approaches, pursuing different agendas. Anyone who's ever sold a
piece of furniture on Craigslist knows what I mean. Some buyers and sellers are
rational people, some are not. Some make decisions based on incomprehensible
logic. Some have their facts all wrong. In the stock market, some trades are
made by computers which may have been programmed wrong.
If you widen out your time frame, market movements generally follow more
predictable patterns...prices follow earnings, trends tend to continue (until they
stop), that sort of thing.
Investing should be fun. Some of the decisions you make will be "wrong" in the
sense that they don't work out, even though logic (your logic, that is) says they
"should."
Protect yourself against bad calls by not going all-in, hedging, using sell-stops, or
conducting periodic Portfolio Reviews (the latter two are my preferred
methods). But I won't put myself through the daily emotional wringer of the
sort described above. It's not worth it, and more to the point, the emotions
probably lead to more bad calls.
As they said in The Godfather, it's not personal, it's business.
by David Van Knapp, author of
SENSIBLE STOCK INVESTING:
How to Pick, Value, and Manage Stocks
and
THE TOP 40 DIVIDEND STOCKS FOR 2010:
How to Generate Wealth or Income from Dividend Stocks
April, 2010
Day traders think in time-frames of seconds, minutes, hours. They often close
out all their positions each night and start over again the next day. Day trading
requires constant attention, because every short time span is significant. Miss a
minute, you may miss the chance of a lifetime.
I read lots of newsletters and blogs just to keep up with the stock investing field.
One of them is called Daily Trader's Alert, written by Sam Collins, a technical
expert at OptionsZone.com. The following is from his column of Wednesday,
March 31, 2010.
- As our readers know, I've remained cautiously bullish even as the
major indices broke to new highs and our internal and sentiment
indicators hovered at dangerous levels.
I've warned again and again of the "overbought" condition of the
market and its need for a correction, and here is the tough part,
while still riding the "long equities" train. Even though it's been a
profitable ride for us, the resilience of the trend higher has provided
this daily writer with some anxious moments.
Now one of the highest profile analysts and a renowned technician
has publicly expressed his frustration with the market. I share with
you part of what Mark Arbeter, chief technician of Standard and
Poor's told subscribers yesterday:
"Quite frankly, we're tired of calling for a pullback that never comes,
and this week, we turned our quote machine off on two different
days, as we couldn't take it anymore. Many times when the monitor
goes off and my mind wants to throw in the towel, we are close to
an inflection point. It's just the opposite of the movie "Trading
Places," when Mortimer Duke screamed, 'Turn those machines
back on.'"
- Dangerous
- Need for a correction
- Anxious moments
- Frustration
- Tired
- Couldn't take it anymore
- Throw in the towel
I just can't imagine living a life where those are the kinds of things that you feel
every day. That's personal with me, I know a lot of people that crave adrenaline
rushes much more than I do.
But the other thing about that list is, it's all emotional. Stock investing should be
emotion-less, a business. I instinctively resist treating the market as if it were a
person, a wayward child, or a bad dog that "needs a correction," gives you
"anxious moments," and brings you to a point that you can't "take it anymore"
and want to "throw in the towel." I resist the common metaphor of "Mr.
Market," an OCD, ADHD, manic-depressive whose purpose in life is to fake
you out and screw you over.
The market is just that, a market. It is a place for buying and selling, with
thousands of individual stocks being traded (bought and sold) whenever the
market is open. Every stock has its own set of buyers and sellers. The prices of
individual stocks change all the time. The market sets a price for each stock
through the process of trading. Each party to each transaction is trying to gain
the greater return over whatever time-frame they are targeting.
No one can predict, with any consistency, the market's moment-to-moment or
day-to-day movements. Those result from the interactions of thousands of
people, some acting alone and some acting on behalf of institutions, all using
different approaches, pursuing different agendas. Anyone who's ever sold a
piece of furniture on Craigslist knows what I mean. Some buyers and sellers are
rational people, some are not. Some make decisions based on incomprehensible
logic. Some have their facts all wrong. In the stock market, some trades are
made by computers which may have been programmed wrong.
If you widen out your time frame, market movements generally follow more
predictable patterns...prices follow earnings, trends tend to continue (until they
stop), that sort of thing.
Investing should be fun. Some of the decisions you make will be "wrong" in the
sense that they don't work out, even though logic (your logic, that is) says they
"should."
Protect yourself against bad calls by not going all-in, hedging, using sell-stops, or
conducting periodic Portfolio Reviews (the latter two are my preferred
methods). But I won't put myself through the daily emotional wringer of the
sort described above. It's not worth it, and more to the point, the emotions
probably lead to more bad calls.
As they said in The Godfather, it's not personal, it's business.
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