Comparing Day Trading with Other Trading Timeframes (March/2009)
From March 10 to March 26 of 2009, the market indices showed a tremendous climb. The S&P 500 was up 22%. The DOW was up 21%. The NASDAQ was up 19%. The S&P/TSX was up 17%. As of the March 27 close, the indices have retreated, likely due to profit taking to lock in gains after the rise in the past couple of weeks. This may be a pause, or it could be the beginning of a trend reversal. We do not yet know.
I day traded 3 stocks on the TSX, employing long and short positions. I traded in 1000 shares of K (Kinross Gold) and TLM (Talisman Energy) and 500 shares of RIM (Research in Motion). The objective is to take price changes of $0.05 to $0.10 per position to yield $50 to $100 gains less $14 commission. My own rules are to take the gain if it is there. The shorter the time period, the better. Shortest duration was under a minute to buy, then sell a long position for an $86 net gain. Longest duration trade was held until the following trading day which is clearly not day trading! My rules are there for me to break and I ultimately have to account for my own actions and the resulting consequences. If I could hire a trader that follows rules without exception and whom I can trust to return gains of 15% per month, I would. Until then, I will have to do. Seriously, if I can only suppress my emotions and follow rules without exception, I would be far better off in trading performance.
From March 11 to March 26, I made 15% net gain in my margin account. For that same period, following candlestick technical analysis, Ctabs showed a 22% gain in K, 13% gain in TLM and 17% gain in RIM. So, my day trading under-performed the short-term candlestick indicators as well as the indices.
I have stated this before and I say it again. If on March 11, I knew that the markets would go up by 20%, I would have entered into 1 trade on March 11 and sold out on March 26. Since we never know ahead of time how far a stock will climb and the precise timeframe, we resort to various trading techniques – day trading, short-term trading, longer-term buy and hold, options trading, technical analysis, etc. In retrospect, I can say that I under-performed with my day trading. However, day trading is a safe way to avoid the volatile inter-day price movement of stocks which is what an active trader has been facing prior to the recent run-up. Even during this run-up, you can see that it wasn’t an up candle every day. There were dips that suggested a reversal at a few points along the way.
For me, I will continue to utilize day trading along with short-term inter-day trading as per candlestick indicated trends. I utilize whatever works, including equity options in the future if and when I figure out how to succeed with that.
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