Is Day Trading for you?
Investment in mutual funds and other traditional investment vehicles is at best disappointing right now. The investment industry is huge and has huge costs associated with it. TV adverts, sales commissions, back office infrastructure, magazines, BONUSES etc. etc. All of those costs are paid from the money you invest before it gets invested. You end up losing money and paying the industry 2-4% a year for the privilege of losing it for you. Of course, back in the 90’s you could throw a dart at a list of funds and make money from them.
Like me, you might be tempted to take a look at day trading software. After all, there are day trading books in Barnes and Noble that are less than 300 pages long. How hard can it be?
The answer of course is VERY HARD.
There are many challenges in becoming a profitable day trader; or rather, many barriers. Almost all books that teach day trading are totally useless. Trading is a career just as being a pilot is a career. You don’t see many pilots learning to fly from a book but that is exactly what aspiring day traders do. Trading is also a competitive endeavor, lots of people chasing the same money. Any competitive endeavor takes practice and dedication which is something most people will talk about but few will actually follow through on.
Day Trading is still attractive though. After all, if you are paying somebody 4% to lose you an additional 15%, why not just do it yourself? If you decide to go this route, you should take a look at the world of proprietary trading. Proprietary trading shops or “Prop Shops” take on smart people, most who have never traded, and teach them to trade. Once their traders become proficient, the prop shop gives them money to trade and they share the profits. Sweet deal, right?
Prop shops come in various shapes and sizes. The bottom line is that they put their own money on the line each and every day, so they need to be good in order to survive. Each has its own style but there are some elements that are quite common. First of all, they tend to focus very much on short term Day Trading opportunities as well as Tape Reading Trading and Order Flow analysis. Every tick helps in this environment so an understanding of how to refine a trade with depth of market is essential.
There are thousands of articles on the internet about how to Day Trade but very few that focus on the way prop shops trade. If you are looking to learn how to Day Trade, you should consider whether the information you are using was written by some frustrated trader in his bedroom or a seasoned prop shop professional. As a starting point, I would recommend Mike Bellafiores book “One Good Trade: Inside the Highly Competitive World of Proprietary Trading”.
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