With daytrading you’re basically trading volatility. Most daytraders trade like market makers. The more volatility there is the easier it is because spreads are wider and there is more demand for liquidity. But it is not linearly easier to trade with more volatility, its exponentially easier to trade. And the same is true in reverse: with lower volatility its not linearly more difficult to trade, it becomes exponentially more difficult to the point of it being almost impossible at really low volatility levels.
Success in daytrading is either easy or impossible and almost nothing in between. When VIX rises above 20 it becomes very easy to trade. When it falls below 15 it becomes almost impossible for a human. But an HFT machine can still grind out small profits which is why HFT has taken over nearly all the market making volume on nearly all exchanges.
There’s a season to every trading strategy. You need to know what season the strategy works in and only trade it in the right season. Wait for the “fat pitch” as they say.
Think of it as being a snow remover in the Northeast USA. When it snows you make good money. During snow storms and blizzards you make a ton of money. During the summer, fall, and spring months you don’t make anything.
Daytrading without stress – forget it. It can never happen. Even if you make 5k in a day you will go home pissed off knowing you could have made 20k if you didn’t make stupid mistakes.
If you lose X amount of money you will need to make 2-3X just to recover from the stress of losing. And stress makes you stupid – it totally shuts down your brain’s ability to think long-term or stick to any plan. Stress –> Stupidity x Leverage = Game Over.
Daytrading as a career makes no sense at all. HFT now has taken over all market making functions in every single asset class. You just can’t get a fill in any market without providing an HFT machine a risk free arbitrage opportunity.
There are so many lower frequency strategies that produce far more profits vs. the risk and stress of daytrading.
There is a very fine line between trading and gambling. The more you trade the easier it is to cross the line without even knowing it.
Trading is not a science, nothing works 100%. So there is a huge risk to being overconfident and using too much leverage. And if you use to much leverage you end up getting forced to liquidate at the worst prices generating huge insurmountable losses.
Every strategy eventually produce a huge drawdown even if its a temporary drawdown.
Trading is not really an art either. In art you can create anything. In trading, you can’t just create any strategy you want without regard what has worked in the past.
Too much short term thinking is really poisonous. For example, I was so focused on short term profits in 2008-2009 that it never occurred to me to pick up the many quality businesses during a once-in-a-lifetime buying opportunity. But even if I had, I’m sure I would have just flipped them for a “quick” profit.
Having learned my lesson, now 80% of my money goes into 5+ year horizon investments and only 20% goes towards short term trades.
Since trading is not exactly a science or an art – unfortunately it’s a bit of a religion. People in financial markets have a lot of faith in strong beliefs. And no amount of data to the contrary can make people change their mind. In markets you have permabulls and permabears. You have people that think one stock is a greatest and other people who think it will go to zero.