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RobinHood

"daytraders" Blowing Up in Bear Markets

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I've heard many times of daytraders who were raking in money during the late 90's bull but then went broke when the market topped in 2001.

 

So I guess they were buying the dips or the breakouts.

 

Even so, wouldn't they have had time to learn different market environments during a market correction before the top? it would only take a market correction of a week or more for them to experience a drawdown and learn to adapt no (since they are trading more frequently than a EOD breakout type of guy)?

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Not sure what it means that you have heard about this... from who? where? any reliable sources?

 

In the truest sense of the word, a 'day trader' in theory should be flexible enough to deal w/ any market conditions, but that is not always the case.

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Not sure what it means that you have heard about this... from who? where? any reliable sources?

 

In the truest sense of the word, a 'day trader' in theory should be flexible enough to deal w/ any market conditions, but that is not always the case.

I agree, most true daytraders I know that were in the markets back then did not get hurt. For most of them it was quite the opposite. A day trader cares about volatility and will trade in either direction. I believe that many of the professionals that did go broke were highly leveraged in positions longer than a day. The whole "it can't go lower, buy more" concept. However, most non-trading baby boomers I have met will use the word "daytrader" when talking about all the people that went broke. Maybe someone with more market experience (ie older ;)) can give some insight.

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I've read accounts of day traders who faded away and died.

 

Basically they had strategies that had worked well in the up froth and couldn't adapt.

 

Darwin didn't say "survival of the fittest", he actually said "survival of the most adaptable."

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Yeah, if it takes you until BROKE to realize that your edge is no longer working...then you have a much deeper issue (like many traders do) :). From the stories I have heard it seems like the act of putting more money into losing positions is what killed most. If you were a daytrader that understood the concept of a stop (both position and daily) you should of been okay if not profited greatly from the volatility. Of course it also depended on your methodology and edge. However, going back to the original thought of this thread...I believe (someone please tell me if you know otherwise) that there was not an abnormal amount of professional daytraders that blew up around that time. Most of the people that did were over leveraged swing traders who didn't know when to let go.

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I reckon there were a lot of people who quit their jobs and called themselves daytraders, but if a position was in the red, they'd just leave it overnight (or longer) until it was profitable. Basically no risk management, which might work temporarily in the middle of a raging bull market, but will kill you when it ends.

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Yeah, if it takes you until BROKE to realize that your edge is no longer working...then you have a much deeper issue (like many traders do) :). From the stories I have heard it seems like the act of putting more money into losing positions is what killed most. If you were a daytrader that understood the concept of a stop (both position and daily) you should of been okay if not profited greatly from the volatility. Of course it also depended on your methodology and edge. However, going back to the original thought of this thread...I believe (someone please tell me if you know otherwise) that there was not an abnormal amount of professional daytraders that blew up around that time. Most of the people that did were over leveraged swing traders who didn't know when to let go.

 

 

i agree, we will all go in slumps. Cut back and work your way up the ladder again.

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I've heard many times of daytraders who were raking in money during the late 90's bull but then went broke when the market topped in 2001.

 

So I guess they were buying the dips or the breakouts.

 

Even so, wouldn't they have had time to learn different market environments during a market correction before the top? it would only take a market correction of a week or more for them to experience a drawdown and learn to adapt no (since they are trading more frequently than a EOD breakout type of guy)?

 

The simple facts are that MOST retail traders (daytraders) don't have the skills or the account size necessary to adapt to a changing market. In Susana's thread "Looking to Enhance Current *working* Trading Methodology" (my post #30) I offer a couple of comments that might point you in the right direction (if thats what you are looking for).

 

Good luck

Steve

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Good point 52A. The term daytrader is so loosely used, it's hard to distinguish what is being included in that description sometimes.

 

It is loosely used - what it refered to were the NASDAQ intra-day traders (screen traders) back in the tech boom - who some of them went boom and bust. People who knew nothing about the markets were lured into margin accounts to get in the game - this is typical behavior nearing a market top.

 

I even know a guy who has never traded in his life who took out a leveraged loan from the bank back in the summer and loaded up on mining stock mutual funds, you can guess what was the outcome.

 

This is my hypothesis, but I would say the 2008 crash is different in the sense that the day trader community of back then (all the hoards of prop shops etc.) don't really exist to the same extent. From what I read in the industry, the people blowing up in this crash are overnight 'position traders'...prop desk traders of wall street firms, hedge fund traders....who don't really engage that much in the intra-day thing, and were heavily into emerging markets, energy etc...

 

If anything I would say that the intra-day traders 'day traders' are somewhat protected from some of these outcomes that the position trader has to deal with, ie. not trapped into markets collapsing against themself.

 

I almost blew myself up, in Sept alone I was down -32.03% of my total equity. I got extremely greedy, I was never selling, the gains would pile up (oil) and I would just leave them, then of course comes the rude awakening.

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The simple facts are that MOST retail traders (daytraders) don't have the skills or the account size necessary to adapt to a changing market.

If you had said "that most beginers trying to make a go at trading fail because they dont have a solid edge" I would have agreed with you.

In my view, You cant call someone a retail trader..if they dont have the skills to be profitable i.e. they dont have an EDGE.

 

As for the account size, well thats too relative/personal and it depends on many variables to each person trying to make it as a Trader.

 

If you have an Edge and the right work ethics i.e. disciplin to stick to your edge and only your edge then account size does not have to be huge...again account size depends on many variables.. so I cant be specific.

All I can say is if you have a solid Edge and have enough confidence in that edge..as in you have spent screen time watching it and you have a proffessional attitude and work ethic you dont need a huge account.

 

Having the ability to stick to your edge is very important for a beginer trader that is making some consistant progress. It is an almost sure way to be consistant and at the same time allow your self the needed time to become a vetran trader. You allow your self the needed time to mature like a good bottle of wine. Unfortunately many dont have that kind of patience.

 

In contrast...

 

if you are just starting to trade ( newbe) and you are trading without any solid edge and you only have enough capital for a minimum futures account...and plan to earn an income from trading.....well let me just say all the best to you.

 

Thats like me walking into the Redskins practice and thinking I can keep up with these professional Footbal players, why?? because I was pretty good player in my school days.

 

 

 

Regards..

Edited by sep34

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