There is a show called Wall Street Warriors which follows the lives of various individuals who make a living on Wall Street. I watched an episode on Hulu.com last night (the "Open Outcry" episode) and it reminded me why I'm a day trader and not a position trader.
Larry is a floor trader in the orange juice pit. During this episode, everyone in the pit is waiting for a major number. This major number is a prediction put together by "authorities" in the orange juice business. It's an estimation of the amount of oj that will be made the following year. It's in millions of boxes. Larry thinks the number will be somewhere between 140 million and 155 million. He has a position on which essentially makes him net long. He's currently up $150,000 on the day.
This estimation is coming from a group of orange juice "professionals" who are currently in a meeting discussing things such as last year's crop, this year's crop, the likelyhood of a freeze and how many immigrants will be available to work the fields. Based on this discussion, they are going to make a prediction that will probably be nowhere close to the actual number. Nevertheless, the floor traders are going to buy and sell based on their prediction of the professionals' prediction.
Traders in New York are gambling millions on a prediction made by people who don't gamble at all.
The number was way, way off of what the floor trader thought it would be and the market went limit down. His $150,000 profit turned into a $900,000 loss. Want to bet a cool million on heads or tails?
Most people think that day trading is gambling but position trading is not.
What...ever.
It's a lot easier to figure out what's going to happen today than it is to figure out what's going to happen next week, let alone next month.
Unless you know something no one else does, you don't know what's going to happen in the next six months. In order for big, sustained moves to take place, there has to be a major fundamental force at work...such as what's happened with oil over the last few years. But to take advantage of a scenario like that, you need a lot of capital to make it worthwhile. A lot of margin to cover the swings. And any poor suckers who bought at $150 a barrel can tell you all about the perils of trying to predict tomorrow's price, let alone trying to predict at what price it will be trading next month.
If you had spent your entire life working rigs and selling the black stuff, then maybe you could have called the move. Maybe. I doubt you are in the oil business, though.
What about "investing" in a company? A safe, secure company like, maybe, a bank? I think the current economic meltdown is proof enough that no company is safe. Do some people consistently pick profitable stocks? Yes. Some people do. People like Warren Buffet who can go to the corporation and look at the accounting statements in person. People who know exactly where a corporation stands in terms of assets and debt. People who can truly hold for the long-term because they already have lots of money.
I've had many people who know nothing about the markets tell me how risky day trading is. I agree. It is risky and I don't recommend it unless you have a high tolerance for losing money. However, if you think that holding for the long-term is safe or in some way less risky than day trading, you are sorely mistaken and my advice to you is...take the money and go to Vegas. You will have more fun. - 15224
Larry is a floor trader in the orange juice pit. During this episode, everyone in the pit is waiting for a major number. This major number is a prediction put together by "authorities" in the orange juice business. It's an estimation of the amount of oj that will be made the following year. It's in millions of boxes. Larry thinks the number will be somewhere between 140 million and 155 million. He has a position on which essentially makes him net long. He's currently up $150,000 on the day.
This estimation is coming from a group of orange juice "professionals" who are currently in a meeting discussing things such as last year's crop, this year's crop, the likelyhood of a freeze and how many immigrants will be available to work the fields. Based on this discussion, they are going to make a prediction that will probably be nowhere close to the actual number. Nevertheless, the floor traders are going to buy and sell based on their prediction of the professionals' prediction.
Traders in New York are gambling millions on a prediction made by people who don't gamble at all.
The number was way, way off of what the floor trader thought it would be and the market went limit down. His $150,000 profit turned into a $900,000 loss. Want to bet a cool million on heads or tails?
Most people think that day trading is gambling but position trading is not.
What...ever.
It's a lot easier to figure out what's going to happen today than it is to figure out what's going to happen next week, let alone next month.
Unless you know something no one else does, you don't know what's going to happen in the next six months. In order for big, sustained moves to take place, there has to be a major fundamental force at work...such as what's happened with oil over the last few years. But to take advantage of a scenario like that, you need a lot of capital to make it worthwhile. A lot of margin to cover the swings. And any poor suckers who bought at $150 a barrel can tell you all about the perils of trying to predict tomorrow's price, let alone trying to predict at what price it will be trading next month.
If you had spent your entire life working rigs and selling the black stuff, then maybe you could have called the move. Maybe. I doubt you are in the oil business, though.
What about "investing" in a company? A safe, secure company like, maybe, a bank? I think the current economic meltdown is proof enough that no company is safe. Do some people consistently pick profitable stocks? Yes. Some people do. People like Warren Buffet who can go to the corporation and look at the accounting statements in person. People who know exactly where a corporation stands in terms of assets and debt. People who can truly hold for the long-term because they already have lots of money.
I've had many people who know nothing about the markets tell me how risky day trading is. I agree. It is risky and I don't recommend it unless you have a high tolerance for losing money. However, if you think that holding for the long-term is safe or in some way less risky than day trading, you are sorely mistaken and my advice to you is...take the money and go to Vegas. You will have more fun. - 15224
About the Author:
John Grady has profitably traded futures and stocks for over twelve years. He has published the "No B.S. Day Trading Course", a book and video package which explains how professional day traders make decisions. For more information on how to become your own day trading system, visit www.nobsdaytrading.com
