1- Day Trading
So here I am not counting arbitrage & quants. Rather the typical directional day trading performed by an individual.
The potential is pretty low, you cannot exactly move billions over a few minutes to profit from moves that last 3 hours.
Costs are extremely high obviously. Risk 5 points to make 20 points (2 hour ATR), the RR is 4 to 1, oh wait no after counting the 2 point spread you are risking 7 to make 18 and now the RR is 2,5. From 4 to 2,5! This is enormous! You'd have to get immensly profitable to compensate the spreads.
40% winrate with 4 RR equals a PF of 2.666, in a way the "margin" is 166%, very big. But if the spread reduces this to 2.5 RR then the "margin" is 66%...
You need to double your money just to breakeven, and then anythi ng you make above double your money you can keep.
Ahem, sorry??? If someone can more than double their money why not quit day trading and become a billionaire...
Well let's just say if someone is stupid enough to day trade they will not be able to more than double their money anyway so problem solved.
Report after report have shown that no one made money day trading but this does not stop eager beginners from trying, for some reason.
Let's look at a crystal ball example: a day trader identified a buying program, every day at the same hour someone buys 10,000 stocks of Nike .
Right now from yahoo finance I can see this:
Bid 114.80 x 800
Ask 115.57 x 900
The most you could realistically buy to profit from a 10k shares program would be maybe 1000 shares. Say the price move a whole 1%.
Minus the spread there is 0.50% left. On 1000 shares on $115 ($115,000 position). Your profit will be a whole $575.
You close intraday so don't risk 20% gaps (down >20k) but there can be slippage and small intraday gaps. Day trading is not the magic trick to avoid risk.
Even with a crystal ball it is not great :D
The 15 minutes ATR is half what the spread is so all the "quick" day traders are liars. The 1 hour ATR is about equal to the spread. So...
The exceptions will be specific, such as when markets go vertical, then you can get away with the same moves in 1/3 the time or even less; or when dumb "investors" are willing to buy XLM on kraken at a price 30% higher than on other exchanges, or with day trading Bitcoin on Bitmex as market maker (as long as your exposure is hedged) here overtrading would even be rewarded.
2- Short Term
There are 2 main strategies:
- Swing Trading: Swing traders think they can buy at the bottom (support), hold for the entire swing, and then sell at the top. They believe they can compound every small move in a trend for exceptional returns. Warren Buffet said his secret to success was "He Never Got Out at the Top", but swing traders know better. They convinced themselves that since they held for more than hours they were not gamblers. As delusional as Day Traders.
- Trend following: Trend following traders try to identify a trend that they think will continue and capture part of it. This is where we start finding profitable traders (as opposed to previously seen day & swing traders), of course they start being profitable when the greed of wanting to catch entire moves & "ultra compound" goes away. I took trend following in 2020 for very specific cases as a secondary strategy, and recently I used a broader approach, my 14 losses in a row - while they could just be bad luck - may suggest I should stick to my specific cases, for now at least.
Bonus, a strategy few go through (few professional or profitable participants, but a whole lot of noobs)
- Reversals: Going for reversals gets alot of hate from most professionals but some people are good at it. Requires big discipline and extraordinary foresight, so the majority of noobs that try this get stomped by the herd. Most professionals (Wall Street) cannot really go for reversals, if they win they get little recognition and when they lose their clients rage & colleagues laugh. Also, most people care what others (the plebes) think, and it can be very painful to have every one laugh while you experience pain. Some may remember how bears got laughed at at the top of the Dot Com bubble, especially Enron bears. Enron bears got laughed at for years. Even Bernie Madoff bears were at best ignored, at worse laughed at. I don't think the people that lost everything and ended up committing suicide were laughing then. 2005-2007 CDS / MBS short sellers were laughing stocks, if you saw the movie "the big short" you might remember the scene where greedy bankers were pissing themselves and showering in money when "stupid bears" bought those swaps from them, they ended up paying for their greed & stupidity oh wait no the Bush & Obama governments bailed them out, and now the USA have marxist revolutionaries tearing down the country (cher). Michael Burry had to freeze his clients withdrawals because they thought he was crazy / an idiot / totally lost his mind, ye what? The market in a bubble? Naaah!
3- Big bets (months to years)
The credit default swap bet that I mentionned in short term is an example that can go here.
I think George Soros is in between short term and "big bets" (I should call it position trading maybe).
Can last months, sometimes longer (Enron & Tesla short sellers). No one really trades that expire in more than 18 months.
You can call this medium term. If short term is 1 day to 3 months, this would be I guess 3 months to 2 years.
Stock short sellers can remain short for even longer ( Tesla bagholding bears) it's not medium term anymore at that point but not investing either.
Those are the bets that make people famous and make huge profit relatively quickly. The asian crisis, the Bitcoin 2017 bull market, 2007 housing crisis "big short", the dot com bubble in 1999/2000. These are things mainstream knows about, understands.
But short term (</= 3 months) has some pretty "famous" events too, just not as famous with mainstream: Livermore shorting in 1929, wrongest investor in the world Ackman making billions in March when the stock market crashed, Soros Pound thing etc.
The "holy grail". Short term speculators are "bad people" and investors are good boys. No effort 13% returns and definitely not a statistical extreme.
Fun fact: A finance professor studied 16000 stock prices from 1926 to 2015 (90 years). The average return was -100% lelz. The average stock traded for ~7 years and then went to zero.
Only 1000 of the 16000 stocks accounted for ALL of the profits since 1926. And just 86 of the 26000 made up more than half the gains.
You'd get better odds at a roulette table.
Investing should be done by professionals, it is not a holy grail. The average dum dum has better odds at a roulette table.
If short & medium term holding is risky and bad, then investing is extremely risky and double-bad.
At least with short term you get quick feedback and can learn and can choose high probability opportunities.
Short & medium term speculation has existed for thousands of years, long before stocks were first created.
Just because 1 out of 200 countries had a huge bull market in the last century (fueled in part by exporting their ) does not make investing the holy grail any idiot can do.
Also join my discord you will find the link in my telegram channel
1- Choose stock by:(News, Earning Calendar, IPO Calendar, splits, Dividends) by these websites and tools(Yahoo Finance, Benzinga, Zacks, CNN money), tools (Trade Idea, Gazer, Trading View Screener)
2-Entry point: It depends on the stocks I pick.
A-If I go for earning I'll buy at 3:59PM, a day before the earning date and then I'll sell in same day after market or next day pre market. win rate of this strategy is 100% with 1-4%,minimum benefits.(If you choose the correct stocks it works- for choosing the best stock for this strategy you can read analysis in Benzinga or Yahoo finance and select the high EPS stocks)
B- If I go for IPO, I'm ready for buy in few seconds after opening, and I'll sell based on the Volume. it takes only 1min or 2min. I'll go with 50% of my capital and benefits is not less than 5%. snowflake was awesome and I made 20% in less than 2 min
C- I have a list of stocks that usually have wide pullbacks. each pull back made between 500-1000$ for me. I trade on or 2 everyday. recently I use a great indicator in Trading view. If you are interested let me give you the link.
2- Using tight trailing stop loss.
3- Zero emotions.
4- I have few trades each day. approximately 4 or 5, somedays I don't trade. If I have negative emotions or if I be over happy. if I feel market is not safe( I use VIX for this one).
That's it. simple and it works for me very well.