Monday, June 18, 2007

Experiment, Part 2

(Excuse, in advance the somewhat rambling post... it's been a long day and I don't have time to edit much).

My little experiment leads me to believe what a lot of people have told me here for some time; you can't make consistent money daytrading this market. Actually, I think I understood it in February, it has just taken me some time to accept it.

Daytrading, as it existed in the past, is dead.

It has been killed by the Hybrid market and new fees. No longer can you buy or short a stock and easily define your loss limits (within a quarter point), place a stop there and do well. Things just whipsaw too much (perhaps exacerbated by the "sweeps") and there are simply too many pockets of illiquidity to trade as I once did. So you end up with a lot of losers because stocks chop outside of your loss limits too easily. They trade too loosely too often.

I'm not saying it's dead for everybody, I know there are still some people making good money, but it is dead for me.

I have tried to adapt. In the past, I never touched Limit orders. No one I knew did. If you wanted stock, you went market and you normally got a decent price. When you wanted out, you sold at market or your stop was triggered.

Now, you simply cannot trade with market orders. You just really don't know where you are going to get filled. You can't read the tape, it moves too fast... sometimes the quotes update 10 times IN ONE SECOND! This is crazy and I still can't imagine who it benefits. But for a market-order-using-tape-reading-day-trader it has had disastrous consequences.

I thrived in the market between 2000 and the first half of last year. Back then, in the pre-hybrid world it paid to get involved with a lot of positions. You hoped to have 65% winners at the end of the day with small losers and one or two good winners. Now, it's hard to take a "small loser."

Take CNH for example. It's a perfect example of what happens to me over and over again in the hybrid market. It was my first trade of the day:



I bought 400 shares at the opening price, 52.23. It traded up a little and so I bought a couple hundred more at 52.33. But, by 9:32 or so, the bid on the stock dropped down to 52 and only 100 shares were showing there. I had 600 shares. If I chose to sell, I'd get 100 shares at 52, and then the rest, well, who knows where!

So, seeing no rhyme or reason behind the move, I hesitated, hoping that the whip down would lead to a quick whip back up and I put a sell stop for my shares at 51.75. The stop was triggered and I was filled at 51.49 and 51.52... so I lost a straight 80 cents on 600 shares.

Back in the day, I NEVER lost 80 cents on a trade, especially if I was holding 600 shares. I'd rarely lose over 25 cents! But these types of losses in CNH are all too common for me now.

And really, I don't know how to make them stop. So, I can't make these trades anymore...

4 comments:

Woodshedder said...

Dino, what the heck are you doing buying the open? You, as a daytrader have an advantage over me in that you can wait until the exact optimum time to buy. I don't have the ability to sit and watch, and so I must take my entries when and where I can. Throwing a market order at the open just doesn't seem to make any sense for a daytrader.

Can I suggest that you look at maoXian's dummy setups? Forgive me if you've already perused them. When I daytrade (rarely) these setups help me more than anything else.

http://www.maoxian.com/archivecat.html

Please don't take offense; I'm really trying to help.

Dinosaur Trader said...

Wood,

It's cool. I wouldn't post my dreadful numbers here if I didn't have thick skin.

As ironic as this may sound right now, my entire trading career was made between 9:30 and 10:30. I used to buy 20-30 positions at the open and be done at 10:30 normally with a couple grand in my pocket.

I did this consistently for many years... the open was always the most volatile part of the day and daytraders feed off of volatilty. There was a method to the madness.

Daytraders throw orders in at the open looking for quick pops in either direction. There really is tons of money to be made at the open. But it's just become to hard for me to manage the risk, so I'm stopping.

Thanks for the setup link, I will check it out manana.

And thanks for the comment, you always bring good ones.

-DT

Tyro said...

DT,

Going long on gap ups? I remember a lot of Bright traders who made pretty decent coin taking the opposite side of gaps in the opening cross. I tried it for a while at the end of last year and, like you're seeing, I would have a few winners but the losers would devastate me. I couldn't understand how others made money so I talked to them and they were saying that the hybrid market was making the open cross much less profitable.

Curiously, you're taking the opposite side - where you went long, they would have gone short. Funny how it sounds like neither strategy is working like it used to.

Sucks, but sometimes strategies die. Plus ca change, plus c'est la meme chose.

You're not like your namesake, you aren't dying out. You were smart enough to find inefficiencies once, you're smart enough to find them again.

Keep it up, DT.

Dinosaur Trader said...

Tyro,

Thanks for the hopeful words. I feel like this change has been coming, I mean, I started this blog because something had gone seriously wrong with my trading and I felt the only way to bring it back was to examine it.

I have received a lot of good advice and also good amounts of comraderie. Both are helpful and I'm hopeful that I'll get things straight again.

Thanks for the comment,

-DT