Wouldn't Day Trading do well in this environment?

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fwellimort
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Wouldn't Day Trading do well in this environment?

Post by fwellimort »

It seems with high volatility, there seems to be potential for lots of money to be made by day trading and options.

Now, I know Bogleheaders here will disagree but I went through countless research papers and there hasn't been situations like this.

1. Drops in the past month weren't like the past. The drops were in big chunks. Puts have done very well in r/wallstreetbets with some making 6 figures (maybe even 7 at this rate) off only $1,000. More than likely, there will be more drops to come (and it seems to be the general consensus too).

2. Disregarding that, I want to talk about volatility. VIX has been 70~80 recently. Prices are going up and down quite frequently in exaggerated bits. Then I thought, what would be the result if people traded in fast limits (e.g.: Sell at $10 buy at $9.50 and so on).
Research papers in the past talked about trading commissions and taxes being one of the main reasons for under performance. We are currently in a time in which trading is free. And taxes can be avoided in an IRA.

I noticed there hasn't been any real research done vs buy and hold for those who:
1. Uses puts during downturns (and major finance companies including hedge funds do this all the time. Bridgewater for instance and for investment banks, Goldman Sachs -profited a lot in 2008 through this-)
2. Took advantage of volatility to trade in and out
3. Those who bought inverse leverages during bear markets

What are Bogleheader's thought on this. Wouldn't day trading (quickly going in and out at better prices with limits) in current environment prove to be superior strat when VIX is very high?
We don't live in a world anywhere where each trade costs $6~10 * 2 = $12~20 (trade in and out) and there are accounts in which one would not have to worry about taxes such as IRA.

Or am I just not understanding something here. I am starting to think a lot of of research papers regarding market timing don't really hold as true in today's environment of free commissions.

My friend's neighbor who is currently in high school is playing marketwatch and buying in and out constantly. She has been +24% YTD and really made me wonder as I recall when I was in high school playing marketwatch game, in 1 semester, I was able to go from $100k to $763 million through quick in and out trades (executed about 800~1000 trades a day for the entire semester). This was all done in a scenario of no costs on trading. And is now really making me wonder how true research papers hold about market timing in today's environment.
Last edited by fwellimort on Tue Mar 17, 2020 11:41 am, edited 6 times in total.
MotoTrojan
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Re: Wouldn't Day Trading do well in this environment?

Post by MotoTrojan »

This environment would make it both easier to gain, and lose, money. I don't see a reason the gains would be more likely than the losses.
alex_686
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Re: Wouldn't Day Trading do well in this environment?

Post by alex_686 »

Making money with day trading is hard. Most of the skills people have picked up are worthless is this type of environment.

That being said, a person with the right combination of skills and luck could truly make big money.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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fwellimort
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Re: Wouldn't Day Trading do well in this environment?

Post by fwellimort »

Oh. I don't mean the average investor will do well.

But that I do feel for those who have the skills to trade quick, day trading might be very profitable in the current environment.
Same with people who understand inverse leverages and options.

I guess in some ways, I'm asking to challenge the belief of just holding through a recession as I haven't personally found research papers regarding this scenario (also, the average investor does not understand or utilize shorts/inverses/puts so I think it's safe to assume those who are able to correctly use these tools to not be the 'average investor').
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Re: Wouldn't Day Trading do well in this environment?

Post by sixtyforty »

Day trading in this environment (or day trading anytime) is great if you want to give the brokerage houses a lot of money and if you want to end up living in a cardboard box.
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cheezit
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Re: Wouldn't Day Trading do well in this environment?

Post by cheezit »

One of my coworkers day trades and swing trades, mostly with options. His system is mostly TA-based, with some gut-feeling FA mixed in.

Based on the conversations we've had, he's losing money much faster than normal in this environment.
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fwellimort
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Re: Wouldn't Day Trading do well in this environment?

Post by fwellimort »

sixtyforty wrote: Tue Mar 17, 2020 11:49 am Day trading in this environment (or day trading anytime) is great if you want to give the brokerage houses a lot of money and if you want to end up living in a cardboard box.
How would brokerage houses gain a lot of money though. Unlike the past, there are no fees to trading anymore.

A lot of past research papers claiming taxes + trading results in under-performance does not hold as true in today's environment in which neither has to occur.
That's why I'm challenging this conventional belief now. With taxes and trade costs out, the percentage of people who outperform should be higher than thought previously.
I wouldn't be surprised if 1 in 5 can outperform in today's environment. Now, will you be in the 4 in 5 or 1 in 5, who knows. But it seems to those who are skilled, today's environment should more favour day trading and the like compared to the past.

Also, isn't this exactly the concept that created high frequency trading? The notion of taking advantage of arbitrage through quick buy/sells to profit from spreads? There's nothing stopping retail investors from doing the same (especially for those who can program such and get the APIs for trading from the brokerage). Sure both the latency and algorithm would be worse but when VIX is close to 80, I can't understand how it won't be possible.
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Re: Wouldn't Day Trading do well in this environment?

Post by MoneyMarathon »

fwellimort wrote: Tue Mar 17, 2020 11:35 am It seems with high volatility, there seems to be potential for lots of money to be made by day trading and options.
Works like a charm. I can lose money faster than ever with day trading and options. :oops:
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fwellimort
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Re: Wouldn't Day Trading do well in this environment?

Post by fwellimort »

cheezit wrote: Tue Mar 17, 2020 11:50 am One of my coworkers day trades and swing trades, mostly with options. His system is mostly TA-based, with some gut-feeling FA mixed in.

Based on the conversations we've had, he's losing money much faster than normal in this environment.
I still assume the average retail investor to fail in today's environment.

I am talking more about retail investors who are capable enough to write algorithms that take advantage of current volatility to gain through spreads (the spreads should be easier to profit off of when volatility is un-usually high).
You know... those who already work in this sector and know how to write code and aren't trading based on gut feeling.

I feel for those who have more skill than the average (and are willing to take the risk), it should be much easier to beat the market with current volatility than in usual scenarios.
MoneyMarathon wrote: Works a charm. I can lose money faster than ever with day trading and options.
Academia hasn't done much if any research in this type of environment.
Almost all research papers talk about trading costs + taxes + fees or the theories behind market timing (and arriving after weeks or months) vs holding the entire market through. There are no talks about investors who used leverages/inverses/quick buy and sells. In fact, if anything, there's more research paper that prove leveraging almost always outperforms non-leveraging historically and should be seriously considered by investors with long time horizons who have the appetite to not get swayed by the volatility (at very low leverages. Not 3x but more of 1.2~1.8x).

And the very companies that endorse buying and holding, too 'market time' in these types of environments through options.
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Re: Wouldn't Day Trading do well in this environment?

Post by sixtyforty »

fwellimort wrote: Tue Mar 17, 2020 11:51 am
sixtyforty wrote: Tue Mar 17, 2020 11:49 am Day trading in this environment (or day trading anytime) is great if you want to give the brokerage houses a lot of money and if you want to end up living in a cardboard box.
How would brokerage houses gain a lot of money though. Unlike the past, there are no fees to trading anymore.

A lot of past research papers claiming taxes + trading results in under-performance does not hold as true in today's environment in which neither has to occur.
That's why I'm challenging this conventional belief now. With taxes and trade costs out, the percentage of people who outperform should be higher than thought previously.
I wouldn't be surprised if 1 in 5 can outperform in today's environment. Now, will you be in the 4 in 5 or 1 in 5, who knows. But it seems to those who are skilled, today's environment should more favour day trading and the like compared to the past.

Also, isn't this exactly the concept that created high frequency trading? The notion of taking advantage of arbitrage through quick buy/sells to profit from spreads? There's nothing stopping retail investors from doing the same (especially for those who can program such and get the APIs for trading from the brokerage). Sure both the latency and algorithm would be worse but when VIX is close to 80, I can't understand how it won't be possible.
No reason to convince me or anyone else on this forum. Go for it if you want. I wish you luck...just don't risk too much. But honestly this post, IMO is out of place in this Bogleforum.
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fwellimort
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Re: Wouldn't Day Trading do well in this environment?

Post by fwellimort »

sixtyforty wrote: Tue Mar 17, 2020 12:08 pm No reason to convince me or anyone else on this forum. Go for it if you want. I wish you luck...just don't risk too much. But honestly this post, IMO is out of place in this Bogleforum.
I have no energy (nor the time with work) to do such endeavours. And the gains don't seem worth the amount of risk one has to undergo (might get say a 4% better deal but for the time and effort, eh, unless I take a lot more risk with options -which can either go very well or straight out horrible-, trading in and out constantly won't gain anywhere near the level of profit I could get from spending the hours elsewhere).

I'm just here to question the conventional wisdom about 'market timing' due to trading costs + managed fees + taxes when almost all those don't have to necessarily have to exist for people who are skilled today.

And I don't think there's anything wrong with asking these stuffs. I don't see what's wrong to question conventional wisdom. I came here to also learn and hear other people's opinions (whether I agree or disagree, great to hear different perspectives on the matter end of day).

I just feel like for those with enough mathematical/statistical background and can code -e.g. people like me who have much exposure to higher mathematics including stochastic analysis and all and also have exposure to Wall Street-, the current environment feels like it should favor them more than the 'usual times'.
Last edited by fwellimort on Tue Mar 17, 2020 12:19 pm, edited 3 times in total.
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Re: Wouldn't Day Trading do well in this environment?

Post by sixtyforty »

fwellimort wrote: Tue Mar 17, 2020 12:11 pm
sixtyforty wrote: Tue Mar 17, 2020 12:08 pm No reason to convince me or anyone else on this forum. Go for it if you want. I wish you luck...just don't risk too much. But honestly this post, IMO is out of place in this Bogleforum.
I have no energy (nor the time with work) to do such endeavours. And the gains don't seem worth the amount of risk one has to undergo (might get say a 4% better deal but for the time and effort, eh, unless I take a lot more risk with options -which can either go very well or straight out horrible-).
...
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Re: Wouldn't Day Trading do well in this environment?

Post by BlueMoonXD »

If you are describing sophisticated algorithmic trading, then yes I'm sure that type of activity occurs every day in good and bad markets, and I could believe that those types of trading firms thrive on volatility. But those are folks who pay big dollars to have nanosecond latency to the exchanges and have built businesses designed to exploit these arbitrage opportunities.

Other than that I'm not sure I quite understand what you are talking about. You seem to think that anyone who knows a little bit about different trading instruments is far more sophisticated than a typical retail investor. Maybe they are, but they're still a retail investor nonetheless, and I don't see any reason to think they would do any better daytrading in this environment than usual -- which is to say they will probably lose.
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Re: Wouldn't Day Trading do well in this environment?

Post by mlipps »

My boyfriend trades futures & derivatives professionally. They made $2 mil one day, $4 mil another, lost most of their gains for the year another day. He claims they're profitable in the long run and far it be from me to say he's wrong but...I'll stick to indexing & I assume all but the most professional are best off doing the same.
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Re: Wouldn't Day Trading do well in this environment?

Post by TomatoTomahto »

mlipps wrote: Tue Mar 17, 2020 12:27 pm My boyfriend trades futures & derivatives professionally. They made $2 mil one day, $4 mil another, lost most of their gains for the year another day. He claims they're profitable in the long run and far it be from me to say he's wrong but...I'll stick to indexing & I assume all but the most professional are best off doing the same.
Even some of the “most professional” will go bust in this savage environment.

Regardless of that, I don’t think most algo traders consider themselves as doing “day trading” as the title states.
I get the FI part but not the RE part of FIRE.
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Re: Wouldn't Day Trading do well in this environment?

Post by Shallowpockets »

You could do it best on weekly options. Wait until Thursday or Friday to do it. Reduce your daily exposure. There are ways, but you have to have the money to do 100 shares and you probably don't want any stocks less than $100 share and you want stocks that are good companies and in the news.
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Re: Wouldn't Day Trading do well in this environment?

Post by Blue456 »

cheezit wrote: Tue Mar 17, 2020 11:50 am One of my coworkers day trades and swing trades, mostly with options. His system is mostly TA-based, with some gut-feeling FA mixed in.

Based on the conversations we've had, he's losing money much faster than normal in this environment.
I used to work next to a guy who would do that. He would loose $5,000 each month on options.
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Re: Wouldn't Day Trading do well in this environment?

Post by Shallowpockets »

the trick to it all is not to be greedy. If you trade and make $250 a week, that is $12k a year. If you lose 5K a month you are reaching too far and thus you lose.
Do not let your greed exceed your brain.
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Re: Wouldn't Day Trading do well in this environment?

Post by MittensMoney »

You're going to be wrong on the direction at some point & then you won't know when to cut your losses. You're probably thinking "Well, I'll have a plan in place." -- Great, take a small chunk of money and test it out. Let us know how this goes.
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Re: Wouldn't Day Trading do well in this environment?

Post by Mr.Wu »

I know somebody day trading JNUG (junior gold minner 3x) and made big $$$ this week. But is it a good long term strategy? Is it based on luck or knowledge?
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Re: Wouldn't Day Trading do well in this environment?

Post by Nate79 »

If this were true then the professional investors/hedgefunds/active funds, etc would make out like bandits during downturns in the stock market, like 2008. On average the professionals don't do better than index funds.
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Re: Wouldn't Day Trading do well in this environment?

Post by indian86 »

I wouldn't say day trading, but I would say hedging is great when we are at market highs. For instance, in January I bought VXX at 17 and while it went to the 13s soon after, it is now in the 60s, basically quadrupling in weeks. Without daytrading, you can always own something that allows your portfolio value to go up when the market goes down. So now the last few days I have been slowly liquidating the VXX and while overall my long portfolio is down many 100k's, along the way I was able to make about 60k (with a 18k investment) that now I can use to buy more bargains for the long term. Of course you can also use short term puts, or simply short SPY. IF you do this with some new cash when the market is at alltime highs you can still pretend you are buy and hold and not sell your winners.
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Re: Wouldn't Day Trading do well in this environment?

Post by sergeant »

Day trading might do well, it might not. If you decide to do it please post your actions and results.

This is not a recommendation to day trade. I would never do it.
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Re: Wouldn't Day Trading do well in this environment?

Post by mlipps »

TomatoTomahto wrote: Tue Mar 17, 2020 1:16 pm
mlipps wrote: Tue Mar 17, 2020 12:27 pm My boyfriend trades futures & derivatives professionally. They made $2 mil one day, $4 mil another, lost most of their gains for the year another day. He claims they're profitable in the long run and far it be from me to say he's wrong but...I'll stick to indexing & I assume all but the most professional are best off doing the same.
Even some of the “most professional” will go bust in this savage environment.

Regardless of that, I don’t think most algo traders consider themselves as doing “day trading” as the title states.
Supposedly they make their best money in these crazy downturns. I think the OP is right that there is more opportunity when there is market volatility—last year was a hard year for active trading of all stripes. I also think everyone in this thread is right that you will never get an edge on all the pros. If you make money it will be pure luck and you’re better off going to a casino where the odds are at least known.
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Re: Wouldn't Day Trading do well in this environment?

Post by Caduceus »

fwellimort wrote: Tue Mar 17, 2020 12:11 pm
I just feel like for those with enough mathematical/statistical background and can code -e.g. people like me who have much exposure to higher mathematics including stochastic analysis and all and also have exposure to Wall Street-, the current environment feels like it should favor them more than the 'usual times'.
Please try it and let us know how it turns out.
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Re: Wouldn't Day Trading do well in this environment?

Post by Nicolas »

I was thinking this very thing today. I could buy $100K of VOO (Vanguard S&P 500 ETF) on the 1000 point down days and sell it on the 1000 point up days. We’ve been in a see-saw market with alternating 1000 point Dow swings just about every day.

It seems easy, I could make 5% to 10% on each round trip. It’S VOO, it’s not some tech stock or option, I would have relative safety. And if I find myself on the wrong end of the market eventually, I’ll just hold it for the long term. I have more than that in cash now, ready to go.
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Re: Wouldn't Day Trading do well in this environment?

Post by windaar »

A sure fire way to get rich quick!!
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Re: Wouldn't Day Trading do well in this environment?

Post by Northern Flicker »

fwellimort wrote: It seems with high volatility, there seems to be potential for lots of money to be made by day trading and options.
I would phrase it as: with high volatility there is the potential for lots of money to be lost by day trading and options.

While you will always hear water cooler talk from someone boasting about some lucrative short-term trade they pulled off, my opinion is that amateurs engaging in day trading are most likely to increase their risk without commensurately increasing their expected return, particularly when volatility is elevated.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: Wouldn't Day Trading do well in this environment?

Post by nedsaid »

I would like a professional trader to weigh in here. It seems to me that the computers, the algorithms, and Artificial Intelligence would make things harder for traders as it does for active investors. Just fewer market inefficiencies to exploit. But to me, making three trades a year is akin to day trading, I am not the expert here as I have never done higher volume trading or played with shorts, futures, and options. Any professional traders that would like to take a whack at this?
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Re: Wouldn't Day Trading do well in this environment?

Post by mlipps »

nedsaid wrote: Tue Mar 17, 2020 5:17 pm I would like a professional trader to weigh in here. It seems to me that the computers, the algorithms, and Artificial Intelligence would make things harder for traders as it does for active investors. Just fewer market inefficiencies to exploit. But to me, making three trades a year is akin to day trading, I am not the expert here as I have never done higher volume trading or played with shorts, futures, and options. Any professional traders that would like to take a whack at this?
It's not really clear to me what your question is.
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Re: Wouldn't Day Trading do well in this environment?

Post by Northern Flicker »

nedsaid wrote: Tue Mar 17, 2020 5:17 pm I would like a professional trader to weigh in here. It seems to me that the computers, the algorithms, and Artificial Intelligence would make things harder for traders as it does for active investors. Just fewer market inefficiencies to exploit. But to me, making three trades a year is akin to day trading, I am not the expert here as I have never done higher volume trading or played with shorts, futures, and options. Any professional traders that would like to take a whack at this?
Just to clarify, that my claim was concerned with amateur traders should not be construed as my rendering any opinion on the likelihood of success of professional active traders. Market makers likely are doing well with the wider bid-ask spreads, though they also have more risk.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: Wouldn't Day Trading do well in this environment?

Post by jabberwockOG »

As a retail investor trying to guess direction and strength of daily moves in the market while competing with pros, your chances of being successful are slim and none.

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Re: Wouldn't Day Trading do well in this environment?

Post by Ged »

Northern Flicker wrote: Tue Mar 17, 2020 5:12 pm
fwellimort wrote: It seems with high volatility, there seems to be potential for lots of money to be made by day trading and options.
I would phrase it as: with high volatility there is the potential for lots of money to be lost by day trading and options.
On high volatility days the brokerages make lots of money because of the trading volume via payment for order flow.
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Re: Wouldn't Day Trading do well in this environment?

Post by Grt2bOutdoors »

Yes, very well for the guy on the other side of your trade. :P
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Re: Wouldn't Day Trading do well in this environment?

Post by 1789 »

No, because most of the people already trying and failing.
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Re: Wouldn't Day Trading do well in this environment?

Post by long_gamma »

What is the definition of professional trader in this thread?

There are not many prop shops inside or outside of the banks in US. There are few in london. Market makers are not truly professional trader
per say, since they are just market makers who make money from order flow. HFT's are also market makers just faster.

Day traders of this era also mostly use algo's. Setting up shop or server near exchange costs peanuts these days. Using chart and click era has long gone. Most of the day traders are in different market where HFT's and citadel's of the world don't compete. Some of these traders are in micro and mid market, where in big firms can not take position with out having some impact.

Also big firms have to pay up for the hedges because of regulatory reasons or fund mandate, the reason Skew exist in the market. Small traders do not have all those requirements actually can take advantage of this skew

To answer the question, yeah Day traders seek volatility. That does not mean all of them will be successful.
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Re: Wouldn't Day Trading do well in this environment?

Post by nedsaid »

mlipps wrote: Tue Mar 17, 2020 5:25 pm
nedsaid wrote: Tue Mar 17, 2020 5:17 pm I would like a professional trader to weigh in here. It seems to me that the computers, the algorithms, and Artificial Intelligence would make things harder for traders as it does for active investors. Just fewer market inefficiencies to exploit. But to me, making three trades a year is akin to day trading, I am not the expert here as I have never done higher volume trading or played with shorts, futures, and options. Any professional traders that would like to take a whack at this?
It's not really clear to me what your question is.
Are there market inefficiencies that professional traders can exploit? If so, are there more inefficiencies or are there fewer?
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Re: Wouldn't Day Trading do well in this environment?

Post by nedsaid »

Northern Flicker wrote: Tue Mar 17, 2020 5:49 pm
nedsaid wrote: Tue Mar 17, 2020 5:17 pm I would like a professional trader to weigh in here. It seems to me that the computers, the algorithms, and Artificial Intelligence would make things harder for traders as it does for active investors. Just fewer market inefficiencies to exploit. But to me, making three trades a year is akin to day trading, I am not the expert here as I have never done higher volume trading or played with shorts, futures, and options. Any professional traders that would like to take a whack at this?
Just to clarify, that my claim was concerned with amateur traders should not be construed as my rendering any opinion on the likelihood of success of professional active traders. Market makers likely are doing well with the wider bid-ask spreads, though they also have more risk.
Amateur traders can feel free to weigh in as well. I was hoping someone in the business would weigh in.
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Re: Wouldn't Day Trading do well in this environment?

Post by Caduceus »

Nicolas wrote: Tue Mar 17, 2020 5:02 pm I was thinking this very thing today. I could buy $100K of VOO (Vanguard S&P 500 ETF) on the 1000 point down days and sell it on the 1000 point up days. We’ve been in a see-saw market with alternating 1000 point Dow swings just about every day.

It seems easy, I could make 5% to 10% on each round trip. It’S VOO, it’s not some tech stock or option, I would have relative safety. And if I find myself on the wrong end of the market eventually, I’ll just hold it for the long term. I have more than that in cash now, ready to go.
That would only work if the market went down after you've bought. But if the market keeps on going up after you've sold, will you buy it back at a higher price or just permanently be out?
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Re: Wouldn't Day Trading do well in this environment?

Post by Nicolas »

Caduceus wrote: Tue Mar 17, 2020 10:28 pm
Nicolas wrote: Tue Mar 17, 2020 5:02 pm I was thinking this very thing today. I could buy $100K of VOO (Vanguard S&P 500 ETF) on the 1000 point down days and sell it on the 1000 point up days. We’ve been in a see-saw market with alternating 1000 point Dow swings just about every day.

It seems easy, I could make 5% to 10% on each round trip. It’S VOO, it’s not some tech stock or option, I would have relative safety. And if I find myself on the wrong end of the market eventually, I’ll just hold it for the long term. I have more than that in cash now, ready to go.
That would only work if the market went down after you've bought. But if the market keeps on going up after you've sold, will you buy it back at a higher price or just permanently be out?
I would stay permanently out and regard it as part of my fixed-income position, unless it again falls below my sell price at which time I would re-evaluate.

However in this market this will take some courage so I’m now debating whether to follow through on this at all. I’m mainly a buy and hold person, but I’ve seen how I could’ve profited here on an almost daily basis.
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JoMoney
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Re: Wouldn't Day Trading do well in this environment?

Post by JoMoney »

No, it would not do well in aggregate. Trading is zero-sum (every transaction has a buyer and a seller). After expenses like market spreads, brokerage fees, and taxes there is a negative expectation with every trade that has to be overcome with something extra (better information than the other party in the transaction) to come out ahead.
The huge market swings make it easier to have big moves with small amounts of money, but you could do that by leveraging up small moves even in a less volatile environment.
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Northern Flicker
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Re: Wouldn't Day Trading do well in this environment?

Post by Northern Flicker »

nedsaid wrote: Tue Mar 17, 2020 7:20 pm
mlipps wrote: Tue Mar 17, 2020 5:25 pm
nedsaid wrote: Tue Mar 17, 2020 5:17 pm I would like a professional trader to weigh in here. It seems to me that the computers, the algorithms, and Artificial Intelligence would make things harder for traders as it does for active investors. Just fewer market inefficiencies to exploit. But to me, making three trades a year is akin to day trading, I am not the expert here as I have never done higher volume trading or played with shorts, futures, and options. Any professional traders that would like to take a whack at this?
It's not really clear to me what your question is.
Are there market inefficiencies that professional traders can exploit? If so, are there more inefficiencies or are there fewer?
There are more market inefficiencies when liquidity is in short supply due to barriers to arbitrage. We have been seeing that with some bond ETFs where arbitrage opportunities have hung around for a couple of days in some cases.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
dboeger1
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Re: Wouldn't Day Trading do well in this environment?

Post by dboeger1 »

There are certainly exploitable market inefficiencies. There are no guarantees however. Remember, volatility in times like these is often driven by emotions, market sentiment, and fleeting news headlines, which aren't necessarily logically connected to any fundamental inefficiencies. For example, even though I've never been a stock picker, the thought crossed my mind to invest in the fast food industry. Why? Because while their business will be affected by coronavirus, I think the downside risks are much lower than something like cruises or airlines because they're one of the few sectors considered essential and able to serve customers with minimal disruption throughout any virus-related restrictions. I also think at least a non-negligible portion of any stimulus funds targeted at average American consumers will end up being spent on fast food just to feed families affordably and support minimum wage service workers while parents scramble to manage reduced wages, working hours, or even unemployment. I see this as a clear and likely story for how fast food chains will not only be uniquely resilient, but also able to return to pre-pandemic normalcy in a relatively short time frame. This was all before even checking their prices, which in my minimal amount of research, seemed to indicate they had fallen about the same as the overall market, perhaps due to the sheer volume of total market ETFs being sold. That would suggest to me that this sector is undervalued, at least relative to certain others.

The problem is, not only could my predictions be way off, but the market might simply disagree or not care. The recovery might be super fast and people start going out to fancy restaurants instead of drive-throughs. Or maybe this will be the end of days and people will hunt each other for food. Lastly, I might be 100% right, yet the market as a whole predicts something unrelated like a sudden wave of people turning vegan so the prices skip right past rebound to predicting a downturn farther into the future.

So yes, technically speaking, there will likely be more exploitable inefficiencies in a volatile market, but no, I don't think even professional day traders will be able to reliably exploit them on a consistent enough basis to profit from anything other than luck. The historical data which illustrate that very few if any active managers outperform broad market indexes are at the very core of Boglehead philosophy. We tend to boil things down to simple mantras on this forum, so people forget that Bogle's folly was actually based on extensive research which has continued to hold true for many years since. The market would have to get extremely inefficient for anyone to beat it on a consistent basis through skill, and the idea that many intelligent, qualified active managers are all trying to beat each other at the same game reinforces that the markets are actually at least somewhat efficient.
sd323232
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Re: Wouldn't Day Trading do well in this environment?

Post by sd323232 »

some people will do well, some people will lose everything they have.
JD101
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Re: Wouldn't Day Trading do well in this environment?

Post by JD101 »

are there any restriction on how much you can trade using ETFs in 401k/IRA account or there is no restriction, like you can buy and sell as many times as you like just like non retirement account.
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fwellimort
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Re: Wouldn't Day Trading do well in this environment?

Post by fwellimort »

JD101 wrote: Wed Mar 18, 2020 8:59 am are there any restriction on how much you can trade using ETFs in 401k/IRA account or there is no restriction, like you can buy and sell as many times as you like just like non retirement account.
You have to go through a few hoops. Basically, you can as long as meet the margin requirements for pattern day traders (cause, settlement margins are fine).

It's a nuisance though. Not sure about 401k. That's more for your provider. But for IRA, it is possible.
That said, lots of liquidity spread issues recently it seems.
Market doesn't seem that efficient when everyones trying to sell (especially the bond market right now).

Hopefully, markets stabilize. Quite unfortunate to see the market be so volatile and have so much spread issues.
TheMadEph
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Re: Wouldn't Day Trading do well in this environment?

Post by TheMadEph »

I am day trading options in my "play money account" and am up 5x over a month.
HOWEVER - that is a small amount of money, that i am prepared to lose, and anything i make is gravy. Obviously my "real" accounts are getting slaughtered, as I was basically 80/20 AA going in.
But i still have my normal contributions going in on my 401K. For our SEP, I am still making automatic contributions, but set them to cash for right now and will make a big purchase as soon as the virus seems under control. Obviously that will not be necessarily the timing of the "bottom" but oh well...

Now to the point of this thread, the reason i think day trading or "play money" accounts are useful, in moderation, is that they give people a sense of agency. I can place a way OTM put option which assumes continued disaster, and feel like: Hey, I am "doing" something.
That then prevents me from actually doing something with the much larger sums of money that I should not be messing around with. If you are someone who rationally understands the long term investing, but emotionally struggle to not do anything, a limited play money account to actively trade with could be super useful to stop you from doing something with your bigger set of funds.

YMMV, but it seems like a great way to deal with the times....
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Re: Wouldn't Day Trading do well in this environment?

Post by LadyGeek »

I removed an off-topic post and reply, which may be the result of a misunderstanding. As a reminder, see: General Etiquette
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