Bible scripture uses the term "righteousness" for morality. Righteousness includes the way you conduct yourself, your trading, and your trading business. One aspect of morality is that of being ethical. One way to look at morality is to look at its opposite — immorality: badness, corruptness, dishonor, evil, and dishonesty. Sadly, the markets and all too many of those who live off of those who aspire to be traders, fit the definition of immorality. Equally sad to say, these parasites populate the Internet in increasing numbers, as they seek to prey off the ignorance of novice traders. All we can say to that is "Trader, beware!" These denizens of the marketplace will do anything they can to part you from your money. They are ruthless and merciless. However, in spite of them, there are those who survive and get past the ones who would separate them from their hard-earned money. Those survivors have managed to learn a great lesson: trading is a business, and must be conducted as such.
Trading is a business, but certain areas of trading, such as day trading, can be a business missing a key dimension — that dimension being that it can have little value for the development of any individual person’s contribution to society.
I want to make it perfectly clear that I am not writing about the value of markets to the economic structure of the world. Nor am I addressing the value that speculating holds for the development of an individual’s character. To the contrary, markets and those who trade in them are in a position to greatly benefit the economic and societal structures of the world, and, when properly conducted, speculating can contribute greatly to the personal attributes of discipline and self-control among those who speculate in the markets.
My comments here are not to those who truly use the markets as they were originally intended — those who are producers and users, who utilize the markets for hedging.
My comments are not to those who are knowledgeable speculators holding long-term positions providing true liquidity to the markets.
My comments are aimed at those who foolishly speculate in the markets, knowing little or nothing about true market dynamics, and even less about any purpose their speculations may have. Sadly, this includes, for the most part, those novice speculators who dabble in what has become known as “day trading.” I wish to separate true speculative trading from what I will from this point on call “get-rich-quick speculating,” and those who engage in it I will call “novices.”
I have long held that true speculating is one of the finest ways to develop personal character as a human being. Even, speculating as a day trader. Not only do speculators have to develop discipline and self-control, but real speculators, as opposed to gamblers, must also overcome many weaknesses of character that, if not overcome, invariably lead to failure in the markets.
Speculators must conquer fear and greed. Speculators cannot afford delusion; when it comes to market perception, they must be totally honest about what they see. Above all, speculators must rigorously seek the truth about the markets and those who trade in them.
The Missing Dimension
The missing dimension in speculation, as it concerns novice traders, can be seen in the fact that it is almost totally self-serving gambling. At the individual level, for those novices trading is nothing more than a selfish act.
Think about it! What service is performed via the act of short-term gambling? What product is produced that is of benefit to anyone?
The role of novice day traders today can no longer be the claim of providing liquidity to the marketplace. Leaping in and out of trades several to dozens of times a day does nothing more than churn the markets at the same time that it churns the novice’s account! Is it any wonder the brokers love these people? The type of liquidity for which the markets were originally created must take place over the entire course of the time it is needed, not just for a few minutes. A weakness of day trading is that it provides liquidity almost entirely for other day traders.
At one time it could rightfully be said that speculative traders provided liquidity to the need for hedgers to protect against wild fluctuations in price. But how does a trade held for seconds or minutes help the hedger? Let’s face it, it doesn't! When far fewer than 3% of all positions entered into result in the delivery of anything at all, how can it be said that speculation provides liquidity to those who have a need to hedge?
I am not against speculating as an occupation. Speculating is how I make my living, and teaching about speculating is why I created Trading Educators. Speculating is not wrong when it is done with knowledge and wisdom. I make my money, and still do, by having more knowledge and correctly applying that knowledge — wisdom.
It was not until I decided to reach out to help others that I found the real value of speculating — I could use the harvest I reaped from the markets to help other people.
Viewing the results of speculating is similar to viewing a field (the markets) after a vicious battle — the field is strewn with the dead, dying, and horribly wounded. Becoming a victim of the speculative battle is the sad and terrible truth for most novice “traders.” The overwhelming majority of aspiring novice traders will end up having lost most, if not all, of their money. Even greater is the loss of feelings of personal worth as the markets discover and exploit every human weakness of character in those who would become successful at speculating.
At one time, trading was a noble occupation in that speculators actually provided liquidity for those who had an economic need for it. The hedger was able to pass off the risk of excessive price fluctuation to those willing to take that risk in return for the greater anticipated reward — the speculative trader. Speculative traders did take, and still do take, risk after performing a thorough analysis of the fundamentals driving the markets in which they speculate. The true speculator makes his trading decisions based on knowledge gathered from information about: the behavior of the underlying, seasonality, historical and current trends, chart analysis, fundamentals, the market dynamics, and the understanding of those who trade in them. This is quite unlike the way in which novice traders operate.
Short-Term, Day Trading Speculation
Think! Do any of the above parameters apply to the kind of speculation found in day trading as performed by novices? The shorter the time frame traded, the less any semblance of rational trading can be applied. Where does the market analysis come into play on a 5-minute chart?
What is known about the fundamentals? What is known about the underlying, seasonality, historical and current trends? As opposed to being proactive, the novice day trader is almost completely reactive to the price action in the marketplace. I ought to know, I was once a novice.
This is not to say that it is not possible to make money by day trading. I have done that for years. But my question is: of what value other than self-seeking are the winnings from day trading by a novice day trader? What is produced that is of benefit to anyone other than the day trader? Where is the product or service? Where is the value?
The Drawbacks of Day Trading
It is common knowledge that sitting in front of a television set all day long eventually produces atrophy of the mental processes. Someone addicted to television eventually loses much of the ability to think. Television is entertainment without the benefit of participation. There is little action in watching TV.
How much more so for the novice who sits in front of a trading screen all day in the hopes of winning money. At least in watching TV there is some chance of gaining knowledge. What knowledge is gained from watching a cursor move up and down on the screen all day long? Day trading is addictive, and those who sit in front of the screen throughout the day are surely growing brain-dead over a period of time. Novices who engage in this kind of day trading are losing their ability to think, and they are losing it more quickly than the person who watches TV all day.
The novice who day trades throughout the day is subject to almost constant stress in the hopes of monetary gain. The more trading decisions a novice makes in a single day, the less effective he/she becomes. I am asserting a proven fact that is found in the old saying, “all work and no play makes {your name} a dull boy.” There is a reason school classes are on average only 45 minutes in length — the brain can absorb only as much as the seat can endure.
I have proven that the less you trade in and out during the course of a day, the more money you will make. I am telling you here that the more you trade in and out, the less effective you will be. Novice traders who survive the markets long enough to find this out know that their best trades are their initial trades, and that the longer they “play” in the markets, the more they tend to lose what they made earlier in the day.
However, this is advice contrary to what the industry will tell you. So it takes a step of faith to believe what I am saying to you. The industry wants you to trade — they want you to make many trades. The brokers are getting rich from your trading — whether you win or lose, they win. Whether you win or lose, the exchanges take their pound of flesh every time you trade.
Is Day Trading an Occupation?
Once again I ask you to think — is day trading an occupation? Certainly it occupies your time, but what value is produced from this activity? For most aspiring speculators, the product is money lost. For most, it is defeat in the markets. Day trading, even for those who succeed at it, can provide a hollow victory. The result is most often the opposite of the reasons for which a person enters the business of speculating. For most, day trading results in long tedious hours sitting in front of a computer screen — and then even more hours backtesting and fiddling with historical charts trying to figure out a better way to speculate.
People tell me that they want to become “traders” so that they no longer have to punch a time clock. They want to enter this business so they can be their own boss. They want to be independent. They want to answer only to themselves. To accomplish this, they are willing to give up their job and all of its perks. They are willing to give up their retirement program, paid vacations, health benefits, a company car, paid travel, etc. However, few indeed ever count the costs. All they see dangling in front of them is money and all the happiness they think it will bring.
Get a Life
Speculating can be a wonderfully rewarding activity if it is engaged in sensibly. Speculating, when done properly, can furnish the speculator with time and money to do those things that result in an enriched life. Enrichment comes when time and money can be used to bring happiness to others. There is much truth in the notion that the greatest happiness results from giving. The successful speculator is in an excellent position to give both time and money in the pursuit of bringing joy into the life of others.
