The switch from investor to day trading

vicb · 8 January 2007

The switch from investor to day trading

I have been contemplating making the switch from investor to trader.
To make the move I will have to cash in about 30% of my current holdings to raise capital keeping the remaining 70% for long term stock.
On the capital I will have for short term trade I figure I will need to make a return of minimum of 2% a week (averaged out over 1 year).
One of the main reasons for making the change will be for tax advantages.
Has anybody else made the change and if so what problems have you come across or tips of the trade do you have?
Thanks

tech/a · 8 January 2007

(1) A complete shift in thinking from investor thinking.
(2) Must have live data.
(3) Must have discount brokerage.
(4) Must have sound knowledge of technical analysis,in particular but not limited to.

(1) Volume,Support and resistance,consolidation areas and patterns.
Elliot Wave analysis or Steidelmayer--a great tool/s.Gives you the ability to read "Where" the trade is at! becoming proficient in either or both will take years---but well worth it.
(5) Must have search functions on intraday software.
(6) Must have atleast a basic charting package in realtime.
(7) Must have a strong understanding and methodology to assure a positive expectancy.
(8) A black and white mindset---its either right (you stay in) or your wrong (your out)---no MAYBE's
(9) Ability to know when to load to the hilt!2,3 or more trades on run away winners.

Much more but that will do.

Finally Boring is good.
I love the $$$s that can be made but hate the time consumption and the need to be vigilant the whole time your trading.

sam76 · 8 January 2007

tech/a said:
(1) A complete shift in thinking from investor thinking.
(2) Must have live data.
(3) Must have discount brokerage.
(4) Must have sound knowledge of technical analysis,in particular but not limited to.

(1) Volume,Support and resistance,consolidation areas and patterns.
Elliot Wave analysis or Steidelmayer--a great tool/s.Gives you the ability to read "Where" the trade is at! becoming proficient in either or both will take years---but well worth it.
(5) Must have search functions on intraday software.
(6) Must have atleast a basic charting package in realtime.
(7) Must have a strong understanding and methodology to assure a positive expectancy.
(8) A black and white mindset---its either right (you stay in) or your wrong (your out)---no MAYBE's
(9) Ability to know when to load to the hilt!2,3 or more trades on run away winners.

Much more but that will do.

Finally Boring is good.
I love the $$$s that can be made but hate the time consumption and the need to be vigilant the whole time your trading.

Tech, mate a sincere thankyou for what you do here.

vicb · 8 January 2007

Yes,
Thank you for your time and for the reply tech/a.
Great response, I really need to work on my chart reading.
The info from members like tech/a make this site.
All the best

Wysiwyg · 8 January 2007

sam76 said:
Tech, mate a sincere thankyou for what you do here.

That is the best avatar you have there sam....soooooo coooool

clowboy · 8 January 2007

vicb said:
On the capital I will have for short term trade I figure I will need to make a return of minimum of 2% a week (averaged out over 1 year).

One of the main reasons for making the change will be for tax advantages.
Thanks

1)

Why and how? 104% PA is alot (more if you account for compounding?)

2) Assuming that you came to the figure above then what tax advantages?

How much deductions can you claim in a year? I would argue much more than 5k without trading fulltime (add paying office rent etc) is a stretch. If you are returning 104% PA and holding longterm (ie claiming 50% CGT reduction) it is hard to see the tax advantage of paying tax on your full profits just to claim some deductions.

Granted I dont know your bank balance but at 100k returning 100% you would pay 40+% as a trader but only 20% as an investor without any other source of income, 20k in tax is alot.

Happy · 8 January 2007

I never liked idea to make income targets, it is possible, but might be hindrance.

Sean K · 8 January 2007

Wysiwyg said:
That is the best avatar you have there sam....soooooo coooool

I think your avatar takes the cake though. Reminds me of an interesting tea drinking experience in Equador........

I agree that having a more detached approach to trading is required, but investing should also be less emotional.

'Leave emotion at the door, and if you want a friend, get a dog.' GG

wayneL · 8 January 2007

kennas said:
I think your avatar takes the cake though. Reminds me of an interesting tea drinking experience in Equador........

Mate' de coca?

Here is one blokes first years day trading results... with a prop firm though.

http://www.uglychart.com/2006/12/19/final-prop-trading-results/

Cheers

wayneL · 8 January 2007

100% per year is not an unreasonable target and is quite achievable with a low to moderate capital base.

Equally complete bust is not at all uncommon as we have all heard 1,487,654,869,689,674 times by now.

The compounding argument is one that is thrown up consistently and it is a valid argument.

1/ daytrading is a full time profession so wages will be extracted from those profits, severely restricting the compounding effect, depending on size of bank and amount extracted etc

2/ Once you get to a certain size, slippage will become a major problem. In the US, depending on the stocks traded, this can be quite large. Here is oz it will be smaller. Typically, daytraders will have a maximum bank and siphon anything in excess of that into "investments"

In other words, you can only compound so far, before before cash will have to be placed elsewhere.

Cheers

nizar · 9 January 2007

tech/a said:
(1) A complete shift in thinking from investor thinking.
(2) Must have live data.
(3) Must have discount brokerage.
(4) Must have sound knowledge of technical analysis,in particular but not limited to.

(1) Volume,Support and resistance,consolidation areas and patterns.
Elliot Wave analysis or Steidelmayer--a great tool/s.Gives you the ability to read "Where" the trade is at! becoming proficient in either or both will take years---but well worth it.
(5) Must have search functions on intraday software.
(6) Must have atleast a basic charting package in realtime.
(7) Must have a strong understanding and methodology to assure a positive expectancy.
(8) A black and white mindset---its either right (you stay in) or your wrong (your out)---no MAYBE's
(9) Ability to know when to load to the hilt!2,3 or more trades on run away winners.

Much more but that will do.

Finally Boring is good.
I love the $$$s that can be made but hate the time consumption and the need to be vigilant the whole time your trading.

Great post.

nizar · 9 January 2007

kennas said:
'Leave emotion at the door, and if you want a friend, get a dog.' GG

Gotta love Gekko. Its all about the bucks, kid.

nizar · 9 January 2007

vicb said:
The switch from investor to day trading

I have been contemplating making the switch from investor to trader.
To make the move I will have to cash in about 30% of my current holdings to raise capital keeping the remaining 70% for long term stock.
On the capital I will have for short term trade I figure I will need to make a return of minimum of 2% a week (averaged out over 1 year).
One of the main reasons for making the change will be for tax advantages.
Has anybody else made the change and if so what problems have you come across or tips of the trade do you have?
Thanks

I have made the change (or in the process) and im very happy with the progress and results so far. Trading is not as hard as some make it out to be, most people just tend to make what is essentially simple, into something more complex.

You just need to be prepared emotionally. At the beginning it was hard for me to take even 3 or 4 losses in a row. It would make me hesitate for the 5th trade, and of course, that would be the big winner. Just make sure you learn from each mistake.

When a trade is gone, forget about it. No regrets, its over, move to the next one.

Learn to be selective. Your system may bring up many buy signals a day. If they dont exactly meet your criteria, walk away. Dont be tempted to buy everything that moves.

Avoid overtrading. Its a killer. Stay FOCUSSED. You have to be in the same focussed, state of mind whether youve just won a large sum or if one of your stocks has gapped below your stop.

All the best on your journey.

It's Snake Pliskin · 9 January 2007

vicb said:
The switch from investor to day trading

I have been contemplating making the switch from investor to trader.
To make the move I will have to cash in about 30% of my current holdings to raise capital keeping the remaining 70% for long term stock.
On the capital I will have for short term trade I figure I will need to make a return of minimum of 2% a week (averaged out over 1 year).
One of the main reasons for making the change will be for tax advantages.
Has anybody else made the change and if so what problems have you come across or tips of the trade do you have?
Thanks

Vb,

To change just for tax reasons does not warrant a total change in paradigm. With change in paradigm comes a change in emotions, capital usage, risk, understanding of risk, and expected income.

The mental aspect of trading is more immense than you could believe. Some have the mental fortitude to do well.

Snake

wayneL · 9 January 2007

nizar said:
I have made the change (or in the process) and im very happy with the progress and results so far. Trading is not as hard as some make it out to be, most people just tend to make what is essentially simple, into something more complex.

You just need to be prepared emotionally. At the beginning it was hard for me to take even 3 or 4 losses in a row. It would make me hesitate for the 5th trade, and of course, that would be the big winner. Just make sure you learn from each mistake.

When a trade is gone, forget about it. No regrets, its over, move to the next one.

Learn to be selective. Your system may bring up many buy signals a day. If they dont exactly meet your criteria, walk away. Dont be tempted to buy everything that moves.

Avoid overtrading. Its a killer. Stay FOCUSSED. You have to be in the same focussed, state of mind whether youve just won a large sum or if one of your stocks has gapped below your stop.

All the best on your journey.

also a good post

It's Snake Pliskin · 9 January 2007

wayneL said:
also a good post

Yes indeed.

One other thing needs to be considered: is the market the one for you?

tech/a · 9 January 2007

Well I agree with Snake.

Every trade you make will be immediately subject to tax.
Some trades in long term investment portfolios only attract 25% or less tax after holding for 12 mths or more.

If your looking for less stress and more order in life then forget about daytrading.

wayneL · 9 January 2007

tech/a said:
Well I agree with Snake.

Every trade you make will be immediately subject to tax.
Some trades in long term investment portfolios only attract 25% or less tax after holding for 12 mths or more.

If your looking for less stress and more order in life then forget about daytrading.

If you have a business/job, forget daytrading.

This is the thing... daytrading IS a business/job, and should not be looked at the same way as longer term trend trading/investing.

It's different!

If sitting in front of a screen appeals more than digging trenches, sueing innocent folk and ripping off your client, selling ladies shoes or whatever, you'll enjoy it.

If you like your business, stay away. If daytrading is stressful , stay away. It's really as simple as that.

Duc mentioned the BIG factor in another thread... psychology. If you can act like a robot when taking a trade you will have a better chance. This is where most either fail or don't enjoy it.

However if you have (or can develop) the right psychology, it is not stressful at all.

My $0.03

coyotte · 9 January 2007

nizar said:
I have made the change (or in the process) and im very happy with the progress and results so far. Trading is not as hard as some make it out to be, most people just tend to make what is essentially simple, into something more complex.

You just need to be prepared emotionally.

So True -- but wonder if it's something to do with the way we think -- Logically or Creatively.

But the Transition from Investor to Day Trader is massive.
An Investor seems to be chasing perceived bargains, whereas a Trader is concerned with defending a position.

As an Investor turning to Trader you would first need to change this mindset and start defending present positions.

This would change you into a Long Term Trader (6-12 plus mths). Then work your way down to a Medium Term (1-3 mths), then Short Term (1-10 days).

It is the Long Term where you are building the foundation (kindy stage) for the Short Term.

1: You're probably better off using CFDs rather than a Broker -- Short/Long around half the top 300 --- lower costs --- instant trade.

2: Create a small Watch List of Shares under $4.00 with reasonable daily volitility and that can also be SHORTED.

3: Keep your position sizes within YOUR COMFORT ZONE --very important.

You do not need to keep a constant vigil --- quite often SPs will make their High/Low for the day by 11am.

For overall performance I have come around to Target Trading of 3 to 10 days. If the SP appears to be continuing its run, take out the initial stake and let the profit ride as a Medium Term Trend trade.

You can have Day/Short/Medium and Long Term Portfolios all running together.

Cheers

MalteseBull · 9 January 2007

tech/a said:
(1) A complete shift in thinking from investor thinking.
(2) Must have live data.
(3) Must have discount brokerage.
(4) Must have sound knowledge of technical analysis,in particular but not limited to.

(1) Volume,Support and resistance,consolidation areas and patterns.
Elliot Wave analysis or Steidelmayer--a great tool/s.Gives you the ability to read "Where" the trade is at! becoming proficient in either or both will take years---but well worth it.
(5) Must have search functions on intraday software.
(6) Must have atleast a basic charting package in realtime.
(7) Must have a strong understanding and methodology to assure a positive expectancy.
(8) A black and white mindset---its either right (you stay in) or your wrong (your out)---no MAYBE's
(9) Ability to know when to load to the hilt!2,3 or more trades on run away winners.

Much more but that will do.

Finally Boring is good.
I love the $$$s that can be made but hate the time consumption and the need to be vigilant the whole time your trading.

(10) ability to manipulate the market with fake bids/sells and large parcels often seen in day trading stocks

The switch from investor to day trading

vicb

tech/a

No Ordinary Duck

sam76

vicb

Wysiwyg

Everyone wants money

clowboy

Happy

Sean K

Moderator

wayneL

VIVA LA LIBERTAD, CARAJO!

wayneL

VIVA LA LIBERTAD, CARAJO!

nizar

nizar

nizar

It's Snake Pliskin

wayneL

VIVA LA LIBERTAD, CARAJO!

It's Snake Pliskin

tech/a

No Ordinary Duck

wayneL

VIVA LA LIBERTAD, CARAJO!

coyotte

MalteseBull

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