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.
More you might like
Here are two technology stocks that picked up a lot of attention in year 2010 in contrast to one that did not.
This article covers the topic of paper trading as preparation for trading with real money. Failure in paper trading is a sign that the person should not partake in real trading. Success in paper trading does not necessarily mean a person will succeed in real trading.
This article examines tips for stock trading discipline which when applied stringently as rules will lead to stock trading success.
This article examines the technical analysis indicators for support and resistance and trend reversals. Knowing how to identify and apply these will translate into a valuable tool for your trading success.
This article covers my trading observations and evaluation in the month of March/2009. Different trading ideas are examined.