Is Day Trading ‘Sinful’? Only If You Do It Right

A couple of weeks ago the Washington Post ran an article on its business pages profiling “Dylan,” a successful 25-year-old day-trader in Florida.

The article was interesting enough (here’s the link) but the comments left by readers were fascinating. Especially to day traders like us.

We came away with the feeling a lot of otherwise reasonable people hate us — or at least hate what we do. And they made day-trading sound … well, offensive.

Some sort of sinful little secret best kept out of sight and practiced in darkness.
There were lots of comments — 414 on the Washington Post website, as many again on other financial sites like Zero Hedge — and they were overwhelmingly negative. Like 80% negative. Some were even a little scary. Many were vituperative.

Day trading “to me … is a waste and no more additive to society than the drug dealer on the corner making a quick buck,” one WP reader said.
“You do the drug dealer on the corner a disservice,” a second added. “At least the drug dealer is offering a product in exchange for money. That is actual commerce.”

Another describes day-traders as: “…speculative leeches contributing little or nothing to the economy or the country … meh.” A bunch of readers ‘liked’ that comment!

Even over at Zero Hedge, where the audience is a little more market-savvy, the negative comments were crushing: “… day traders add no value to anything but act as parasites, sucking the value out of trades,” wrote one.
Followed by: “Day trader waste of life. Nothing personal.”

NOTHING PERSONAL?

We do a lot of day trading. So do our members. It’s not the only trading we do, but it certainly accounts for a very large percentage.

And you’re telling us we’re parasites, leeches, wastrels, less worthy than the drug dealer on the corner? Holy Crackhead, Batman, what do you mean, nothing personal?

It is hard to see what stirs such moral outrage. Day-trading is just a technique, one of many and no more deserving of contempt than any other.

But nobody calls buy-and-hold investors parasites and leeches (although anyone doing that for the past decade might reasonably be called dumb).

Day-trading just means completing every trade the same day it is initiated. We don’t hold positions overnight, except in rare cases, so we can turn off the screens and leave it all behind at 4:15 every night. What’s wrong with that?

Three things, say the commentators:

• day-trading contributes little or nothing to society at large; it doesn’t help build factories or create jobs;

• day-trading is just a grab for easy money, without doing the hard work of analysis and investigation ‘normal’ investors use;

• and besides, it doesn’t work; you may make money for a while, but eventually you will go broke.

The business about serving society is frankly puzzling.

The stock market is not organized for social benefit. For example, most stock transactions don’t have much to do with capital formation or financing operating companies.

When you buy 100 shares of Apple, the money doesn’t go to the company; it goes to the guy who owns them. Apple doesn’t get any additional benefit from the transaction.

Except for a few religious and social groups, investors — including ‘normal’ investors — don’t decide to buy or sell on the basis of social utility; they do it to make a profit. They are trying to preserve their capital, not preserve the environment.

The second issue, the idea that day-trading is ‘easy money,’ just seems silly to anyone who does it. It is hard, demanding, sometimes exhausting work, especially for new traders.

It may look easy, and it certainly can be lucrative. And it may not take a lot of time (many of our traders are finished by noon). But it demands intense concentration and quick thinking. Everyone who is successful at it knows it ain’t easy. So do those who try and fail.

BUT DOES IT WORK?

Not for everyone.

There are thousands of day traders who have been making a quiet comfortable living from the market for many years, although they never appear in the pages of the Washington Post.

However most of the people who decide to take a fling in day-trading lose money. If you treat it like a game of chance you will almost certainly contribute to the profits of those who are better prepared and better trained.

But if you treat it like a business, learn the techniques, manage the risks, find the right mentor to help you, then day-trading — at least the way we do it — has big advantages over other forms of investing: less risk(!), much less initial capital, vastly greater potential for profit.

And it doesn’t matter to us if the market is up or down, as long as it moves. Good times or bad times are all the same for short-term traders like us.

Perhaps that is what is so annoying. But don’t blame us. We didn’t create the situation; we just take advantage of it.

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Naturus is the web name of Polly Dampier, the brains behind www.naturus.com, where she gives real-time guidance to active traders every day.