First, a warning: If you are a short-term trader what you are about to read is going to be disheartening and slightly devastating. It may cause your lip to quiver and salty fluid to drip from your eyes. I don’t really care because I am here to spit truth gained from dropping out of college at the age of 19 to trade, working on an institutional trading desk by the time I was 21, starting a hedge fund at 26, spending money like it was going out of style by 28 and losing it all by the time I was 30.
With every bull or bear market cycle there are those who come along thinking that they can beat the market utilizing short-term trading strategies based on hourly or daily movements in stocks. At the same time, pops up a crop of supposed market mavens who are there to advise these starry eyed traders of the opportunities across short-term strategies. For every aspiring short-term trader, there is an aspiring market maven who is willing to hold their hand. The dreamer and the facilitator of that dream. The perfect union or so it seems.
I have literally witnessed the careers of dozens upon dozens of short-term traders who started in the mid to late 90′s. I have also witnessed the careers of the accompanying hand holding, market gurus who accompany these short-term traders. They all start the same way. Inspired by a story about how much John Q. trader made last year at the age of 23 trading AAPL stock by simply buying and selling at advantageous trading points. Or the story of how the guy who used to work an office job discovered an options trading strategy that has managed to provide 5000% gains, allowing him to smile brightly while working from home in flip flops and a wife beater.
Flashes in the pan. I do not know of ONE single scalper or trader with a time horizon less than a week who started in the 90s and is still in the game today. Not one. Perhaps more curiously, the professionals stock pickers who purport to be able to beat all the obstacles one faces when trading on a short-term time frame are also gone. Some are in jail. Some are bankrupt. Others have simply vanished to a life making ham & cheese omelettes for Russian tourists in coastal cities across the Eastern U.S.
Today an entire new crop of traders and gurus has sprouted up utilizing a new means of disseminating trading ideas through Twitter and various other social media venues. Never mind that today’s trading environment is infinitely more difficult than the one that caused the group from the 90s to turn into ghosts. And don’t tell me that it was the bursting of the internet bubble that caused these traders to disappear. It wasn’t. They hung around for years afterwards. The market grinded them to a slow death by taking every penny they made in the 90s through a steady regimen of churn and turning everything they thought they knew into silly putty.
Back then you were trading against other retail traders, institutions and some hedge funds. The landscape today? High frequency trading, quantitative zombie machines that are designed to take everything you learned from your favorite trading books and shove them into your rectum until your backside is confused for the reopening of Borders. They will take out your stops with precision. Your traditional means for entering a trade via breakout, crossover or whatever else you want has a coin flips chance of being retraced almost immediately. Your ability to execute into an opportunity will get front run by systems that are designed not waste a single millisecond. Faster than you can click buy at Etrade.
Let’s not forget about the fact that, in addition to the presence of HFTs, the retail investor has disappeared. What does that mean for short-term traders? Your competition is no longer Willie Davis trading from comfort of his office chair, utilizing a strategy he bought for $29.99 while flipping through channels at midnight on a Wednesday. Your competition are hedge funds. Your competition are large institutional trading desks that breed future hedge fund managers. Your competition is global, sophisticated and hungry. I mean H-U-N-G-R-Y for returns. As a short-term retail trader, you are a high school football player, without a helmet, in the middle of an NFL game.
I’ve gone over my allotted time for devastating the dreamers.
Your time is short. Your dreams are long. Soon you will male exotic dancer, in a thong. This is an ode to the short-term trader.