# Daytrading experiment



## james4beach

It wouldn't be a Federal Reserve-induced Tech Bubble without getting suckered into daytrading!

I've started a paper trading experiment with fake money. Phase 1 of the experiment will be to collect 20 days of data. Phase 2 is to collect another 30 days of data. I will not permit myself to consider real money until I have 50 days of data.

My approach uses a handful of leveraged/volatile ETFs for basic trend following, focusing on areas of the market I know pretty well. The prices and outcomes I record will include bid/ask spreads, but no fees. I will also record SPY prices for reference. All trades are intraday only. No overnight positions. I'm using some risk control by enforcing hedging, and there must be multiple positions. Being purely long or short the market is not permitted. All trades are subject to my own proprietary risk check.

*Goal:* the hope is to produce returns that are uncorrelated to the market. If the returns _are_ correlated with the market, then there's no point to this.

*What I expect*: I expect to see a sequence of somewhat random daily returns. It will either have no pattern (no average gain) at all, or if there is a gain, it will probably be very weak or unreliable. I'm really curious to see what the results look like. This is a genuine attempt and if it actually works, I would consider opening an IB account for this.

I expect the results to be terrible. I won't post the trades (too much work) but I will share the results, the daily % result and corresponding SPY change.

The ETFs that I'm currently thinking of are: TQQQ, SQQQ, SSO, SDS, FAS, FAZ, TBT, TMF, GDX.

Today was the first result. For the timespan I was in the market, SPY was -0.06% and my trades produced +0.34%


----------



## Just a Guy

I’d caution you about your results...in the current market it’s almost impossible not to make money. I had a buddy make Double digit returns on a bankrupt South American airline, and he wanted to hold on for more returns until I talked him into selling.
when the market returns to “normal”, day trading will be much harder.


----------



## james4beach

Just a Guy said:


> I’d caution you about your results...in the current market it’s almost impossible not to make money. I had a buddy make Double digit returns on a bankrupt South American airline, and he wanted to hold on for more returns until I talked him into selling.
> when the market returns to “normal”, day trading will be much harder.


Thanks, that's a good warning. It can certainly be a problem when short term results look encouraging (leading to overconfidence).


----------



## Just a Guy

Yeah, my buddy went from never making a trade to day trading in a matter of months. He’s screwed up a number of times, but the market has always Bailed him out so far... I keep warning him, and he keeps saying he knows, but he also keeps gambling and succeeding....I know how this is going to end, and he says he also knows as he rushes towards the light.


----------



## james4beach

Just a Guy said:


> Yeah, my buddy went from never making a trade to day trading in a matter of months. He’s screwed up a number of times, but the market has always Bailed him out so far... I keep warning him, and he keeps saying he knows, but he also keeps gambling and succeeding....I know how this is going to end, and he says he also knows as he rushes towards the light.


If you happen to know more details about his trading mistakes, can you share? Is it that he holds onto bad positions, and the generally strong market simply bounces the security back up (bailing him out) -- whereas in other weak markets, his bad picks would tank hard?


----------



## doctrine

There is definitely weird stuff happening out there. Tech, clean tech, and biotech has some insanity/bubble stuff going on. When electric vehicle manufacturers with zero sales are worth billions, and when more are going public every week with multi-billion valuations, and tech is making thousands of millionaires every few weeks it seems... it might take a long, long time to get a long term return on any stock with a P/E of 40, or even worse a P/S of 40.

This is much more reminiscent of 1999-2001 than 2007-08 though. The daytrading is a big clue. I would be really skeptical of growth stocks. There is a lot of value in non-bubble sectors that remain depressed, which also draws parallels to the tech bubble. You could see very strong returns in beaten up sectors over the next 3-5 years where tech could go up 100% from here but then could fall just as quick - no one knows.

If I was trading today, I would be trading into value that has momentum, and most cyclicals are entering into that phase. I am also invested in that space and am most comfortable there, even for 1-3 month periods. You could do this with growth momentum although I wouldn't, if you can try to capitalize on some electric car manufacturer or COVID-testing company with a ridiculous P/B of 50 or 100 or more. Take profits and run fast. You could make money in 1999-2001, but you do not want to be left holding the bag - companies lost 99% within 1 year periods and sometimes 99.9% or more. All you needed was a good trendy story and you instantly had a billion dollar company. That eventually ran out, but it did take years to fully play out.


----------



## james4beach

doctrine said:


> This is much more reminiscent of 1999-2001 than 2007-08 though. The daytrading is a big clue. I would be really skeptical of growth stocks.


Thanks, these warnings are really great. Like I wrote above, I'm expecting that my initial experiments will give terrible results, or perhaps random patterns. And hopefully my curiosity about daytrading will end there 

I would normally dismiss speculative trading entirely, except for two previous experiences.

The first is my TSX growth and momentum stock-picking. I've been having good results for 4 years now, several percent CAGR better than the TSX. This isn't a very long track record though and the last 4 years have been a strong market, so I could just be experiencing high beta. Due to this suspicion, I still only have 30k invested in this portfolio.

The second is some weird currency trading I once did, non leveraged. I was exclusively trading AUD/CAD, and the results were uncorrelated to the underlying currency, which was interesting. My results net of fees were
2016: me +8.0% , underlying was -3.0%
2017: me +5.7% , underlying was +2.2%
2018: me +14.1% , underlying was -1.0%

That last year, I really seemed to hit my stride and I remember it was pretty thrilling. I stopped doing it because I was trying to squeeze the trading into my lunch break at my office job, and that wasn't so great (luckily the boss was also really into trading, and found my results fascinating). After 3 years, I decided to quit while I'm ahead, then I shuffled and amalgamated accounts, ending the trading.

The boss is actually quite the gambler, and he used to tell me to leverage and deploy as much money as I possibly could, into this. But I was actually sometimes coming late to after-lunch meetings (13:00 pacific is market closing time) and I didn't feel great about being delinquent at work. Even though the boss cheered on my trading.

Those FX results were surprising to me. The AUD/CAD over those years was basically sideways, net -2% for the three years. Somehow, I made +30%. Perhaps I was able to trade it easily precisely because it was just sideways, constantly swinging back and forth (link to chart). It could be another example of something I got lucky in, but it may not be repeatable... perhaps just random luck.

Still, over 5 years, these were two distinct trading strategies which both went well. Both could be somewhat lucky, random results, but I am tempted to try again.


----------



## jargey3000

Interesting thread here....
I'm thinking of going "all-in". Would you guys say this topsy-turvy market will continue an upward trend til, let's say, Tuesday Nov. 3, 3020?


----------



## jargey3000

there's always the "unknown factor" or course, that could upset things.
who saw covid-19 coming?
I have a weird feeling something might happen with Biden.....dont know what....before the election.
what effect would that have, on the stock market...?


----------



## Just a Guy

james4beach said:


> If you happen to know more details about his trading mistakes, can you share? Is it that he holds onto bad positions, and the generally strong market simply bounces the security back up (bailing him out) -- whereas in other weak markets, his bad picks would tank hard?


He’s not doing proper research, and still making money which reenforces his confidence, making him a bad trader in the long run. A bankrupt South American airline is a perfect example. He made money because the short sellers were trying to cover their positions, he had no idea that was why, took me about 10 minutes to figure it out.


----------



## Just a Guy

jargey3000 said:


> Interesting thread here....
> I'm thinking of going "all-in". Would you guys say this topsy-turvy market will continue an upward trend til, let's say, Tuesday Nov. 3, 3020?


I think you missed the boat. The easy money was a few months back, now valuations are starting to get ridiculous again. I’m a big fan of Apple, but I don’t think it was Worth 1T before let alone 2T today. And Tesla’s over 2k/ share... we’ve gone from irrational to insane.


----------



## jargey3000

every day since $300 im wondering if i should sell my aapl....but it just keeps going UP.
I guess it'll settle a bit after the split, but who knows...


----------



## james4beach

Just a Guy said:


> I think you missed the boat. The easy money was a few months back, now valuations are starting to get ridiculous again. I’m a big fan of Apple, but I don’t think it was Worth 1T before let alone 2T today. And Tesla’s over 2k/ share... we’ve gone from irrational to insane.


Well Apple at $2 trillion is already worth more than the entire Canadian economy. I'm sure some people think that $3 trillion is just around the corner.


----------



## james4beach

Do any of you, perhaps @Topo or @Rusty O'Toole have experience making intraday trades that are closed by the end of the day?

These vehicles like TQQQ can move pretty significantly so I think one might be able to 'harvest' volatility or ride momentum over short timespans.

If you look at last Tuesday Aug 25 for example, even if you joined the well-established rally in the afternoon, briefly perhaps 1400-1500, that's +0.72% which is pretty significant.


----------



## Topo

james4beach said:


> Do any of you, perhaps @Topo or @Rusty O'Toole have experience making intraday trades that are closed by the end of the day?
> 
> These vehicles like TQQQ can move pretty significantly so I think one might be able to 'harvest' volatility or ride momentum over short timespans.
> 
> If you look at last Tuesday Aug 25 for example, even if you joined the well-established rally in the afternoon, briefly perhaps 1400-1500, that's +0.72% which is pretty significant.


I don't have any experience day trading. I am often working during the day, so the continuous access that is needed for day trading is not feasible for me. I have heard of traders scalping futures, but I don't know if that is successful in the long run. 

I occasionally do swing trades that span from a few days to a few months, but since this is with a small portion of my portfolio, it does not materially affect my annual returns. It does, however, provide for a good dopamine boost.


----------



## james4beach

Topo said:


> I don't have any experience day trading. I am often working during the day, so the continuous access that is needed for day trading is not feasible for me. I have heard of traders scalping futures, but I don't know if that is successful in the long run.


Yeah, this is the main part that concerns me -- the need to continuously monitor. It's the same problem I ran into with my AUD trading, even though it was giving great results.


----------



## Topo

james4beach said:


> Yeah, this is the main part that concerns me -- the need to continuously monitor. It's the same problem I ran into with my AUD trading, even though it was giving great results.


One way around that is to open a position, then set a limit order to sell above (for long positions) and a stop-loss to sell below (if desired). That way one could go about work and then make adjustments or open a new position later on.


----------



## james4beach

Topo said:


> One way around that is to open a position, then set a limit order to sell above (for long positions) and a stop-loss to sell below (if desired). That way one could go about work and then make adjustments or open a new position later on.


Can you recommend any paper trading / simulation platform which is good for trying out trades?

I used RBC DI's practice account before but was not impressed. Doesn't give you bid/ask spreads and the interface is awful when quick decisions have to be made.

The only good one I'm aware of is IB simulation account. I'm not too concerned about the specific platform at the moment, but definitely want real-time quotes and bid/ask spreads. I want to try things out without any real money in play. Any suggestions?


----------



## Topo

james4beach said:


> Can you recommend any paper trading / simulation platform which is good for trying out trades?
> 
> I used RBC DI's practice account before but was not impressed. Doesn't give you bid/ask spreads and the interface is awful when quick decisions have to be made.
> 
> The only good one I'm aware of is IB simulation account. I'm not too concerned about the specific platform at the moment, but definitely want real-time quotes and bid/ask spreads. I want to try things out without any real money in play. Any suggestions?


I don't know of any, since I have not tried to use them. My guess is that the bid/ask spread for most liquid ETFs would be in the penny range, so it may not matter a whole lot, unless you are doing many trades a day. It may be more important to have access to a free ETF trading account, because even 2 trades per day would add up to 5000 dollars per year. On the other hand, even a 5 cent spread only amounts to 25 dollars in the same time period.


----------



## james4beach

Topo said:


> I don't know of any, since I have not tried to use them. My guess is that the bid/ask spread for most liquid ETFs would be in the penny range, so it may not matter a whole lot, unless you are doing many trades a day. It may be more important to have access to a free ETF trading account, because even 2 trades per day would add up to 5000 dollars per year. On the other hand, even a 5 cent spread only amounts to 25 dollars in the same time period.


I might be getting ahead of myself thinking of fees, but just wanted to point out the potential problem with the "free" trades.

The ''free trades" accounts, as far as I know, all sell their order flow. That's the Robinhood idea, and IB now has a Lite version that does the same. Having your order flow go to these specific market makers will, I'm pretty certain, deprive you of price improvement and may even deprive you of limit fills.

For example the full IB account uses their smart order router, which I remember from the past, is actually very good at selecting the best marketplace and giving best fills. Their "lite" account has no-commission trades, but then the order flow is sent to specific market makers instead of the smart router. This is guaranteed to give worse fills, which amounts to hidden fees and possibly even worse, poor execution under market stress / volatility.

There is an argument to be made that good quality execution (say the IB smart router) and paying fees, is better than going through an inferior market maker intermediary and risking having orders not fill. Especially in fast moving markets where a fill is even more important... do you really want to pay "no fees" and endanger those trades?

Scotia iTrade may be a good compromise actually. $4.99 per trade for frequent traders, Big 5 bank safety, and (I presume) good order routing, though it's really hard to get a read of how good their order routing and execution is.


----------



## Topo

james4beach said:


> I might be getting ahead of myself thinking of fees, but just wanted to point out the potential problem with the "free" trades.
> 
> The ''free trades" accounts, as far as I know, all sell their order flow. That's the Robinhood idea, and IB now has a Lite version that does the same. Having your order flow go to these specific market makers will, I'm pretty certain, deprive you of price improvement and may even deprive you of limit fills.
> 
> For example the full IB account uses their smart order router, which I remember from the past, is actually very good at selecting the best marketplace and giving best fills. Their "lite" account has no-commission trades, but then the order flow is sent to specific market makers instead of the smart router. This is guaranteed to give worse fills, which amounts to hidden fees and possibly even worse, poor execution under market stress / volatility.
> 
> There is an argument to be made that good quality execution (say the IB smart router) and paying fees, is better than going through an inferior market maker intermediary and risking having orders not fill. Especially in fast moving markets where a fill is even more important... do you really want to pay "no fees" and endanger those trades?
> 
> Scotia iTrade may be a good compromise actually. $4.99 per trade for frequent traders, Big 5 bank safety, and (I presume) good order routing, though it's really hard to get a read of how good their order routing and execution is.


Those are important points, but do we know for sure that RBCDI for example is providing the best fill to its costumers? IB is great both in terms of pricing and transparency, and that would be the way I would go.

It also depends on how much funds you are moving around. For example if you buy and sell 105,000 of SPY (300 units), a 1 cent loss on execution amounts to 3 dollars each way. Still better than paying 10.00 per trade.


----------



## james4beach

Topo said:


> Those are important points, but do we know for sure that RBCDI for example is providing the best fill to its costumers? IB is great both in terms of pricing and transparency, and that would be the way I would go.
> 
> It also depends on how much funds you are moving around. For example if you buy and sell 105,000 of SPY (300 units), a 1 cent loss on execution amounts to 3 dollars each way. Still better than paying 10.00 per trade.


Those are good points. You're right, how do we know that RBC, TD, or Scotia give the best fills and execution?

Would you be leaning towards IB Lite, then? This is the one without Smart Routing. It was created as their answer to Robinhood's no fee model.

Or did you mean regular IB, which does have Smart Routing (better fills for sure) and still charges fees?


----------



## Topo

james4beach said:


> Those are good points. You're right, how do we know that RBC, TD, or Scotia give the best fills and execution?
> 
> Would you be leaning towards IB Lite, then? This is the one without Smart Routing. It was created as their answer to Robinhood's no fee model.
> 
> Or did you mean regular IB, which does have Smart Routing (better fills for sure) and still charges fees?


It may be worth it to pay the 0.47 for 100 shares on IB Pro so as to get better pricing. Even if you put a limit order, IB sometimes executes for a lower price, which could add up over time. The more units you trade, and the less liquid they are, the more inclined I would be to go with IB Pro. The best way would be try each for one month and compare results. I doubt the difference would be huge, but every penny counts when it get multiplied.


----------



## james4beach

Topo said:


> It may be worth it to pay the 0.47 for 100 shares on IB Pro so as to get better pricing. Even if you put a limit order, IB sometimes executes for a lower price, which could add up over time. The more units you trade, and the less liquid they are, the more inclined I would be to go with IB Pro. The best way would be try each for one month and compare results. I doubt the difference would be huge, but every penny counts when it get multiplied.


One potential issue are the low priced securities including SQQQ at around $22. If you trade a 50K position, that's about 2300 shares. With the IB fixed pricing, I think that's 0.005 * 2300 = $11.50 in fees. Not exactly an improvement vs the big banks.

IB is the clear winner when the share price is high (fewer shares) but it's kind of weird that they charge you on a per share basis. And some of the things I'm interested in trading (SQQQ, TBT) have very low share prices and could generate a ton of fees at IB. Might be still worth it for the Smart Router though.

I was trading during 2007-2008, at IB, and can tell you that execution performed amazingly well in that turmoil. Sometimes I saw the market seize up, everything freeze, then gap one way or the other (we're talking about days the banks blew up) and I still got fills. I have absolutely no doubts that IB's Smart Router is the real deal.


----------



## john.cray

james4beach said:


> Can you recommend any paper trading / simulation platform which is good for trying out trades?


Take a look at Free Stock Charts, Stock Quotes and Trade Ideas in case you haven't come across it.


----------



## AltaRed

Are you really talking about day trading? Day trading, as i understand it, closes out all positions before market close each day.


----------



## james4beach

AltaRed said:


> Are you really talking about day trading? Day trading, as i understand it, closes out all positions before market close each day.


I'm very skeptical, but yes I am considering a kind of trading that closes positions by the end of the day.


----------



## Rusty O'Toole

Day trading is a mug's game. It may be possible to make money but it's a hard time consuming job. I like to find something trending and hold on for weeks or months, as long as it is going up. If it turns around I get stopped out. At times I may be stopped out in a couple of days, other times it runs for weeks.


----------



## james4beach

Rusty O'Toole said:


> Day trading is a mug's game. It may be possible to make money but it's a hard time consuming job. I like to find something trending and hold on for weeks or months, as long as it is going up. If it turns around I get stopped out. At times I may be stopped out in a couple of days, other times it runs for weeks.


I tend to agree with that Rusty, it seems like an easier way to do this. My growth and momentum stock picks are of that variety. I hold some positions for a few months, and this has worked out reasonably well for me.

As you might recall from another thread, I've also started riding momentum in hot sectors. Same idea ... stick with what's trending, as long as it's trending and outperforming. I'm long XIT.


----------



## Longtimeago

Rusty O'Toole said:


> Day trading is a mug's game. It may be possible to make money but it's a hard time consuming job. I like to find something trending and hold on for weeks or months, as long as it is going up. If it turns around I get stopped out. At times I may be stopped out in a couple of days, other times it runs for weeks.


I would equate it to playing blackjack every day. You can estimate the odds of winning on every hand, it isn't total guesswork but unless you are cheating, in the long run you will lose if any third party is getting a piece of the pie on every transaction. That's why in Vegas, the house ALWAYS wins.

Stock trading whether day trading or not, is always a gamble and when you gamble, you may win or you may lose. Personally I consider saying buying stocks is an 'investment' is a misnomer. When you invest, you do not do so expecting that you will perhaps lose. You invest because you *expect* to make a profit.


----------



## Rusty O'Toole

Longtimeago said:


> I would equate it to playing blackjack every day. You can estimate the odds of winning on every hand, it isn't total guesswork but unless you are cheating, in the long run you will lose if any third party is getting a piece of the pie on every transaction. That's why in Vegas, the house ALWAYS wins.
> 
> Stock trading whether day trading or not, is always a gamble and when you gamble, you may win or you may lose. Personally I consider saying buying stocks is an 'investment' is a misnomer. When you invest, you do not do so expecting that you will perhaps lose. You invest because you *expect* to make a profit.


I would agree if stock prices were random but they are not. At least not always.


----------



## londoncalling

Longtimeago said:


> I would equate it to playing blackjack every day. You can estimate the odds of winning on every hand, it isn't total guesswork but unless you are cheating, in the long run you will lose if any third party is getting a piece of the pie on every transaction. That's why in Vegas, the house ALWAYS wins.
> 
> Stock trading whether day trading or not, is always a gamble and when you gamble, you may win or you may lose. Personally I consider saying buying stocks is an 'investment' is a misnomer. When you invest, you do not do so expecting that you will perhaps lose. You invest because you *expect* to make a profit.


I agree with your and many others analogy to trading being similar to gambling. The odds are not in your favour but some can do well at it and others cannot. I was unable to follow your last statement as I believe traders would trade because they *expect* to make a profit as well.


----------



## Topo

Today would have been a good day to trade SQQQ, if you had bought before 1100 and sold at the close.


----------



## doctrine

So have you been day trading this week and what are the results like in the increased volatility?


----------



## Just a Guy

Topo said:


> Today would have been a good day to trade SQQQ, if you had bought before 1100 and sold at the close.


Daytrading is so easy with hindsight...everyone should do it.


----------



## james4beach

doctrine said:


> So have you been day trading this week and what are the results like in the increased volatility?


I've only tried three days so far, and was away hiking today so didn't catch these moves!


----------



## MrBlackhill

Just a Guy said:


> Daytrading is so easy with hindsight...everyone should do it.


I called it here Tech sector

But that's luck, that's just a coincidence. The technicals were telling the story, the coincidence is that I called it the day right before it happened. I was simply expecting a correction in the next days/weeks. I wanted to swing trade a -2x Daily Bear ETF as I'm not too sure about day trading, but I was pretty confident about a correction in the short term.


----------



## Topo

Just a Guy said:


> Daytrading is so easy with hindsight...everyone should do it.


Everything is so easy with hindsight....


----------



## james4beach

Here are some preliminary results. There isn't any real money at stake, this is all fake, with real quotes and bid/ask spreads. The trading values are done for today but the S&P 500 is still moving, so I just ended it when I made this graph










The trading method is short term trades for small profit or loss, with a very tight stop. This is way too early to draw any conclusions, but at least it's less volatile than the S&P 500! Today's profit was +0.34%.


----------



## Just a Guy

I made more than that on my buy and hold portfolio, even with the market down the last two days. And I didn’t pay any trading fees.


----------



## james4beach

I can see how short-term trading could drive a person nuts.

In my paper experiment, I had a good trade today, net +0.32% while the market dropped a bit because I had the correct bearish positions.

But if I had held those positions another hour, I'd be up +2.33%. That doesn't mean my trades were wrong (I am aiming for short, quick trades) but it does show the kind of agony one can experience with this kind of thing.

My goal here is NOT to generate the highest returns possible. I want to see if I can generate a relatively reliable stream of positive returns that are uncorrelated with stocks. The ideal result would be returns which steadily grind higher whether or not the stock market is headed up or down over the span of months.


----------



## Rusty O'Toole

You can make good money day trading especially if you find something that is trending. Friend of mine made $140,000 day trading Nortel in the big run up, and lost it all in 6 weeks in the big run down.
I can't help thinking he would have made multiples of that if he bought at the beginning of the run up and held on, and kept it if he had a stoploss order just under the market.


----------



## james4beach

Rusty O'Toole said:


> You can make good money day trading especially if you find something that is trending. Friend of mine made $140,000 day trading Nortel in the big run up, and lost it all in 6 weeks in the big run down.


Losing it all on the way down... ouch.

This is one reason I'm experimenting with trades which try to capture very short term trends, closed before end of the day. But I'm still not sure whether I can pull that off.

So far, my daily outcomes are pretty random and average out to about zero. But this is why I'm collecting data ... I want to see what the resulting statistics are.


----------



## Rusty O'Toole

james4beach said:


> Losing it all on the way down... ouch.
> 
> This is one reason I'm experimenting with trades which try to capture very short term trends, closed before end of the day. But I'm still not sure whether I can pull that off.
> 
> So far, my daily outcomes are pretty random and average out to about zero. But this is why I'm collecting data ... I want to see what the resulting statistics are.


I asked him why he rode it all the way back down after day trading it for a year. He said after the first drop he thought surely it must come back - that is what everybody said. Then it dropped so fast, by the time the word got out about what bad trouble they were really in it was too late. Anyone day trading from home is going to be behind the news. That is why I prefer the technical approach. The news may not be up to date but the prices are. Often something will crash and all the pundits come up with a smooth explanation, then weeks later the real story comes out.


----------



## james4beach

Rusty O'Toole said:


> I asked him why he rode it all the way back down after day trading it for a year. He said after the first drop he thought surely it must come back - that is what everybody said. Then it dropped so fast, by the time the word got out about what bad trouble they were really in it was too late. Anyone day trading from home is going to be behind the news. That is why I prefer the technical approach. The news may not be up to date but the prices are. Often something will crash and all the pundits come up with a smooth explanation, then weeks later the real story comes out.


Our own minds (psychology) could be our greatest enemy, when investing.


----------



## Rusty O'Toole

james4beach said:


> Our own minds (psychology) could be our greatest enemy, when investing.


You said it. And how. I know I had to revise my own way of thinking many times before I found some success as an investor. Many of the biggest market wizards have said the same thing. Once they figured out how to make money, they thought they had the world by the tail then they found out they were being sabotaged by their own psychology.


----------



## james4beach

Rusty O'Toole said:


> You said it. And how. I know I had to revise my own way of thinking many times before I found some success as an investor. Many of the biggest market wizards have said the same thing. Once they figured out how to make money, they thought they had the world by the tail then they found out they were being sabotaged by their own psychology.


It's a reason I suggest not ruling out one of the low risk techniques like the Permanent Portfolio.

My returns aren't spectacularly high, but are pretty decent. More importantly it's a low stress portfolio. On days the market tanks (like a few days ago) it becomes much easier to handle. So from an emotional standpoint, the Permanent Portfolio or even 50/50 make life easier, which could result in superior long term results.

Dividend investing has the same benefit. Imagine you just bought CDZ and ZDY and did nothing else. They just keep paying dividends... you can ignore market fluctuations, or get used to them since they are (almost) of no consequence.


----------



## Rusty O'Toole

I don't get the part about ignoring market fluctuations. Right now the stock market is very high, and dividend returns of the best dividend payers about 4%. In other words if your stock drops 4% it wipes out a year's dividends. Everyone agrees the market is overbought and a correction is overdue. I'm not willing to see the savings of a lifetime wiped out or decimated.


----------



## james4beach

Rusty O'Toole said:


> I don't get the part about ignoring market fluctuations. Right now the stock market is very high, and dividend returns of the best dividend payers about 4%. In other words if your stock drops 4% it wipes out a year's dividends. Everyone agrees the market is overbought and a correction is overdue. I'm not willing to see the savings of a lifetime wiped out or decimated.


I agree that the stock movements can indeed wipe out the dividends paid out. What I meant was that if you can train yourself to focus purely on the dividend cash payments, then you might be willing to forgive the sharp drops in stock prices. There might be comfort in looking at the cash payments and seeing that they are steady over time, even if the stocks plummet.

This method is not for me, but I think this is how some dividend investors see things. I'm not endorsing it, but I see how that could work.


----------



## Rusty O'Toole

Years ago I read Warren Buffet's description of value investing. He advocated buying stocks of sound companies that were beaten down in price and went on to say, when you do this, you should be prepared to see your stock drop 50%. This is where I jumped off the sled. If he thinks I am going to watch half my money evaporate and do nothing about it he is crazy. I worked too hard suffered too long to get it. I guess it's different when your father is a congressman and the money you are losing belongs to your investors.


----------



## Rusty O'Toole

Another familiar tune is the stock of an old reliable company that pays a great dividend, say 6% or 8% when everyone else is paying 4%. So the dividend investors buy this great bargain. And it keeps on dropping until they have lost half their money. But who cares, the dividends are still coming in. Then they cut the dividend or suspend it completely. Now the stock is worth practically nothing and has no dividends. Next thing you know the company is bankrupt or taken over by a rival for pennies. No thanks.

It reminds me of a story Jimmy the Greek used to tell about a bookie he knew. This bookie was an expert on football and basketball but knew nothing about horse racing. One day he asked the Greek's advice on whether to take a $10,000 bet or lay it off. He said "take the bet, that horse doesn't stand a chance". Then he told him which horse was going to win and he bet $10. The Greek said "I don't get it. You just took a $10,000 bet on my say so and now all you are putting down on the winner is $10?" the bookie said "I don't believe any of them can win". That's how I feel about the stock market.


----------



## james4beach

Rusty O'Toole said:


> Another familiar tune is the stock of an old reliable company that pays a great dividend, say 6% or 8% when everyone else is paying 4%. So the dividend investors buy this great bargain. And it keeps on dropping until they have lost half their money. But who cares, the dividends are still coming in. Then they cut the dividend or suspend it completely. Now the stock is worth practically nothing and has no dividends. Next thing you know the company is bankrupt or taken over by a rival for pennies. No thanks.


This is a very valid concern. I have always pursued investment approaches based on total return, ignoring dividends. My concern is always: what is my total account worth, and am I preserving capital?

That's why my favourite investment approach is this one. Look how steady it is; capital is preserved.


----------



## Rusty O'Toole

Did you mean to link to a backtest page?



james4beach said:


> This is a very valid concern. I have always pursued investment approaches based on total return, ignoring dividends. My concern is always: what is my total account worth, and am I preserving capital?
> 
> That's why my favourite investment approach is this one. Look how steady it is; capital is preserved.
> 
> View attachment 20620
> 
> 
> View attachment 20621


----------



## james4beach

Rusty O'Toole said:


> Did you mean to link to a backtest page?


Yup sorry, the link was buried there inside the text:





__





Backtest Portfolio Asset Allocation


Analyze and view backtested portfolio returns, risk characteristics, standard deviation, annual returns and rolling returns



www.portfoliovisualizer.com





I realize this allocation won't be for everyone, but these are the characteristics I like about it: it has a solidly positive real return, mild declines, and low volatility.

A similar allocation is the AOK fund (south of the border) which provides the same kind of thing, or possibly VCIP here in Canada though this one is very new and I haven't looked at it very closely. I have recommended AOK to a few friends in the US.


----------



## james4beach

Now at 10 days of the daytrading experiment. I looked at the statistics (mean, stdev) and this suggests that currently, my results are quite random and meaningless. So I'll continue until I have 20 days, and then look at the stats again.

I won't be surprised if my results are pretty random overall. The hope is that it's somewhat random with an upward bias.


----------



## Rusty O'Toole

James I already told you how to get a 446% gain in 6 months. How good do you want it? Take another look at the TQQQ daily chart. It went from 32 to 175 and now the squeeze has just turned red. I wish I had used a looser stop and rode it all the way up but I didn't. I kept chickening out and jumping in and out, still I made money with very few drawdowns. Next time I hope to do better. Incidentally I am synthetically short 1000 shares having bought 10 put options. This is the first time I have shorted it, and feel quite nervous but, if my calculations are right it is the thing to do.


----------



## MrBlackhill

I'm personally not day trading, but on September 2 I told to short NASDAQ and I said here that I expected NASDAQ to drop to 10 500 soon. We've seen 10 700 since then.

Also, I was not planning on buying more stocks until the end of the year, but at the moment I'm getting ready to buy NASDAQ's current drop.


----------



## james4beach

Rusty O'Toole said:


> James I already told you how to get a 446% gain in 6 months. How good do you want it?


You've been having great results trading the NASDAQ but this style isn't for me. I've tried it in the past and have a very poor track record for it, so I stopped doing that. I can't reliably capture up & down trends that last weeks or months.

The "day trading" I'm experimenting with are very short term trades which are closed by end of day. Cumulative result so far:


----------



## Rusty O'Toole

TQQQ dipped as low as 110.76 and I now have 20 puts. Am looking into buying SQQQ the reverse ETF of TQQQ. I tried to short TQQQ but they won't allow it.


----------



## james4beach

I've been refining my day trading technique somewhat. I have reduced the number of trades involved and am focusing on fewer trading vehicles.

Once I finish Phase 1, I'll look at the stats and see where I am. So far, it does look like my results are uncorrelated with the broad market. For example even a huge up or down day in stocks has virtually no impact on my results.

Maybe what will emerge from this is "another asset class" for me, which would be awesome. If I can get another asset class which is uncorrelated with others, and which has an expectation of profit, that could really enhance my overall asset allocation.


----------



## james4beach

Rusty O'Toole said:


> TQQQ dipped as low as 110.76 and I now have 20 puts. Am looking into buying SQQQ the reverse ETF of TQQQ. I tried to short TQQQ but they won't allow it.


Congrats on the TQQQ puts and/or SQQQ long. Do you think you will exit your position soon or do you expect the QQQ to keep falling?


----------



## Rusty O'Toole

Squeeze turned yellow today. Anyone who followed the original thread knows what that means. If confirmed by a second yellow on monday I will close the position and go long. Have not had confirmation from the RSI which is a concern.


----------



## Rusty O'Toole

james4beach said:


> Congrats on the TQQQ puts and/or SQQQ long. Do you think you will exit your position soon or do you expect the QQQ to keep falling?


Squeeze turned yellow today. Anyone who followed the original thread knows what that means. If confirmed by a second yellow on monday I will close the position and go long. Have not had confirmation from the RSI which is a concern.


----------



## :) lonewolf

https://docs.cmtassociation.org/dow-award/2016-gayed-biello.pdf

I could not get link to work above. Google Charles H Dow award CMT association. When on the site go to the winning paper for 2016 Leveraged for the long run.

Using 200 day moving average to buy & sell with 3x leverage S&P with 1% mer from Oct 1928 to Oct 2015 turned 10,000 into 9 trillion compared to 19 million buy & hold S&P

3 times leveraged S&P ETF with 1% mer

average return 26.8
sharpe ratio .47
Sortino ratio .90
Max draw down 92.2%
Beta 1.30
annual alpha 16.0%
average number of trades per a year 5

a shorter moving average might work with day trading


----------



## Machu Picchu

Rusty O'Toole said:


> Squeeze turned yellow today. Anyone who followed the original thread knows what that means. If confirmed by a second yellow on monday I will close the position and go long. Have not had confirmation from the RSI which is a concern.


Thank you again Rusty. I don't trade options or SQQQ so this Monday I will start dipping into the market.


----------



## Rusty O'Toole

Just be aware that the squeeze signal has not been confirmed by a second yellow bar, and the RSI has not confirmed it either. If I go long it will be with a tight stop.


----------



## Rusty O'Toole

Second yellow bar today which I take as a buy signal. Got long 1000 TQQQ this afternoon @ 128.84. Closed @ 129.72. The Squeeze was NOT confirmed by the RSI which is a concern. Will add to this position if the TQQQ behaves, in the meantime will keep a tight stoploss.


----------



## james4beach

Rusty O'Toole said:


> Second yellow bar today which I take as a buy signal. Got long 1000 TQQQ this afternoon @ 128.84. Closed @ 129.72. The Squeeze was NOT confirmed by the RSI which is a concern. Will add to this position if the TQQQ behaves, in the meantime will keep a tight stoploss.


Good luck with the new position.

My (fake) trades had a 0.2% loss today. My one month return, since I started, is now 1.86% before fees. I'm aiming for a "slow and steady" approach, hopefully uncorrelated with the broad market.


----------



## Rusty O'Toole

Bought another 1000 TQQQ today, after closing out my puts on Monday. Long 2000 shares @ 129.2146


----------



## james4beach

Here are my Phase 1 results of paper trading, for 20 trading days. The result is +2.3% and details are in the charts below. Curious what others think.

Does this look promising? I really wonder how much of this is luck/randomness. The win vs loss ratio looks very promising at the moment, but I wonder how sustainable that is.


----------



## james4beach

Topo said:


> I am often working during the day, so the continuous access that is needed for day trading is not feasible for me. I have heard of traders scalping futures, but I don't know if that is successful in the long run.


The time commitment may be a problem. I'm trying a technique that involves minimal time, so what I've tried for these 20 days may be a sustainable time commitment. At the moment I'm more concerned with sustainability, whether these initial results are just lucky/random, and how much things might change if I use real money (loss aversion).

Do you have any suggestions on statistics to look at? At the moment I'm planning on another 30 days of paper trading.


----------



## Rusty O'Toole

Looks like you are doing well so far. The longer you practice the better you get, and the more confident you get. It took me 4 years to find a trading method that pays, and another 3 to get good at it. I still don't feel I know everything but know enough at this point to make money, and to back off when things go sour. Are there days when you don't trade, simply because you don't see any real juicy trades? That is an important lesson. It's not like you have a job where you have to do something every day. As Warren Buffet puts it, there are no called strikes in this game. You can stand there for a year with the bat on your shoulder, waiting for a cream puff to float over the plate.


----------



## james4beach

Rusty O'Toole said:


> Looks like you are doing well so far. The longer you practice the better you get, and the more confident you get. It took me 4 years to find a trading method that pays, and another 3 to get good at it. I still don't feel I know everything but know enough at this point to make money, and to back off when things go sour. Are there days when you don't trade, simply because you don't see any real juicy trades? That is an important lesson. It's not like you have a job where you have to do something every day. As Warren Buffet puts it, there are no called strikes in this game. You can stand there for a year with the bat on your shoulder, waiting for a cream puff to float over the plate.


Thanks Rusty, and yes there are days I look at the market and don't see the setup that I'm looking for.


----------



## MrBlackhill

Rusty O'Toole said:


> TQQQ dipped as low as 110.76 and I now have 20 puts. Am looking into buying SQQQ the reverse ETF of TQQQ. I tried to short TQQQ but they won't allow it.


Ever though of switching to FNGU instead of TQQQ for day trading? It's 3X leveraging FANG+ and it did amazing things this year.


----------



## Rusty O'Toole

MrBlackhill said:


> Ever though of switching to FNGU instead of TQQQ for day trading? It's 3X leveraging FANG+ and it did amazing things this year.


No but I will have a look at it. By the way I don't day trade, I prefer to hold a trade for weeks or months as long as it is going in my direction.


----------



## MrBlackhill

Rusty O'Toole said:


> No but I will have a look at it. By the way I don't day trade, I prefer to hold a trade for weeks or months as long as it is going in my direction.


Swing trade then.


----------



## Rusty O'Toole

MrBlackhill said:


> Swing trade then.


FNGU looks promising.


----------



## james4beach

My experiment has been interesting so far and I think I'm learning some useful things. When I first started, many of the short-term trades were going well and the win rate was looking quite high. It seemed a bit "too easy". But as time goes on, a few things appear to be changing:

1. My win rate is dropping. It's currently a 53% win rate which is closer to what I'd expect. But I'm now in "coin flip" territory.

2. Market intraday behaviour seems to have changed. I have a strategy that works well under certain conditions. For the first 40 days, I was getting those conditions much of the time. But lately the market behaviour has changed and it's now harder to find the conditions I want.

3. It's harder to stay motivated to continue trading without those bursts of easy wins. I guess this speaks to the behavioural side of active trading... does one stick with the plan when things aren't going well? Can one maintain the discipline?

I have read about these things in books like Fooled by Randomness and it's pretty cool to witness it first hand!


----------



## james4beach

Still collecting data. I think the biggest lesson for me so far has been that market conditions change, and what seemed "too easy" for a while can suddenly stop working when the market's behaviour changes.

And when it changes on you, then you have a method which _doesn't seem to be working_, which is tough emotionally. Do you stick with a method through a long period of losses or dead money? This chart shows it pretty well. Here's my daily P/L. Notice that everything looks great until mid October. Then I got into a rough month-long period with hardly any gains.

Stats after trading fees:

Daytrading total return = +2.2% (underperforming market)
S&P 500 total return = +2.5%
Daytrading drawdown = -1.1% (less volatile than market)
S&P 500 drawdown = -9.4%


----------



## james4beach

I have more or less given up on this idea. I really wanted it to work, but I don't think it will.

One has to do this "full time", like a job. For example I looked at the market right now, and I can't trade the current conditions using my technique. So I would have to wait, and keep watching the market. Not only is that a waste of a day, but one also has to show up and do this like clockwork. It has to be a methodical and dedicated effort [like a real job you show up to every day]. You can't just do it at your leisure, or when you feel like it.

Personally, I don't want to spend all day at my desk checking/watching the market.

I'm glad I tried this on paper for a few months before opening an Interactive Brokers account.


----------

