To sit on a boat in the Carribean, executing billion dollar trades from your laptop – isn’t that the dream?
Day trading stocks, bonds, currencies, options, commodities and the like is one of those things that twenty-somethings sitting at their computers believe would be a cool way to make a boatload of money to then enjoy on a literal boat, while avoiding the rat race (i.e. useful work). Personally, I prefer the area around the Golden Goat on the French riviera.
Wouldn’t it be great? Yeah, it would. Emphasis on the conditional tense. It is, of course, a subtle negative – it would. But it is not.
There’s a boatload of reasons for this. They range from the psychological (your own lizard brain’s own damn faults) through the competitive to the systemic.
Not only are the markets one of the most complex systems known to mankind, with interrelations incomprehensible to anyone or anything on the planet. On top of this incredible complexity, there’s an ocean of irrationality. The result – less predictability than you would get with randomness.
In day trading, you’re up against people who dedicate every minute of their waking life to getting better information than you, against some of the smartest algorithms ever devised, and against insiders who know things you never will. What, you thought just because insider trading is illegal, it’s not one of the main ways serious money is made? Pfffttt.
Not least of all, you’re up against your own bank or brokerage that will bleed you on transaction fees, although fintech startups are finally starting to change that.
To “outsmart the market”, you either need privileged information (which is illegal), prophetic foresight (probably not a thing), or colossal amounts of luck (which is fickle, and relying on luck is not a strategy).
What information are you going to trade on? Technical analysis? Astrology, augury for nerds. Fundamentals, quarterly reports, business news and financial blogs? The person who understands that the available information is not credible is the smart one. The information released by publicly traded companies is not always trustworthy, and analysts write what they get paid to write. Conflicts of interest abound, and it’s not unusual for finance columnists to shit talk assets they expect to be good, so they can buy cheap. Strategic self-fulfilling prophecies. Welcome to the real world. I’ll be your guide.
But by far the biggest dangers are internal – your own lizard brain is a dragon trying to eat your savings.
Here’s a brief list of the main psychological pitfalls of trading:
Fear of missing out (FOMO) – getting in too late, typically at the peak of bubbles. You probably heard of people who mortgaged their houses and raided their college funds to buy Bitcoin when it was three times its present price (note I did not say “value”). If you miss the party, acknowledge it and move on.
Need to be right – getting out too late. “This shit will recover, I did not make a mistake and am not taking a 20% hit” – said the shareholders of every failing company ever, then taking a 100% hit.
“I can time this!” – you can not. The two basic types follow.
Catching falling knives – in principle, buying falling assets and waiting for a recovery – but you have no idea where the bottom is. If it’s falling, there’s a reason. It may fall a lot further. I bought Carillion last year when it got into trouble, betting on a government bailout and major turnaround. It went bankrupt.
Selling at peaks – again, you have no idea where the peak is. Barring clearly irrational bubbles, recognizable by hyperbolic charts, the most likely scenario when you sell an asset at a profit is that there’s a reason it’s been appreciating, and will continue to do so. You should only sell well-performing assets to fund even more lucrative opportunities. I sold Amazon at $270 per share, taking a nice 15% profit after only a few months. It’s at $2000 now. (Don’t cry for me, I bought Apple, NVIDIA and Tesla)
Right now, many young people underestimate the difficulty of, forgive me, trading in real markets, and overestimate their trading ability based on their experience in the financial wading pool of cryptocurrencies. Crypto may yet grow to be the main game, but for now, it’s a tutorial level. Participating in a heavily rigged market at the time of a bubble is not the same as skill, and trading against teenagers, NEETs and internet libertarians is not comparable to trading against the absolute shark tank of Wall Street / City of London / Zurich. Especially as the sharks are increasingly cyborg sharks.
The most dangerous thing in day trading, as in other games of chance, is beginner’s luck – getting a few lucky hits early on, concluding that you’re a rare genius, and rationalizing contrary evidence as a mere rough patch that will be overcome once you regain your mojo. You don’t have a mojo. There is no such thing. There’s cause and effect, math and psychology (people have been arguing for millenia which of these are the ultimate nature and causes of which of the others. Or perhaps, as Carl Jung and tripping rainforest tribesmen would have it, there’s only mojo, and the others are its efects. Damn.). The game is brutal. You got lucky.
Do not attempt to time the markets. Do not day trade. It’s a minefield of cognitive biases and Dunning-Kruger self-congratulation on random luck. If you have money to invest, invest long term. Do not speculate, do not gamble. You are not a cosmic exception. The rules apply.
For those still inadvisably interested in day trading, I have prepared the following educational material:
Beginner’s guide to day trading
Intermediate guide to day trading
1) Meticulously analyse technical indicators, market sentiment and central bank policy remarks.
2) Make a bet.
3) Wistfully watch the market do the opposite.
Advanced guide to day trading
Spend huge amounts of time and effort and take massive risks with your life savings to eke out an okay but precarious income that you could easily triple or quadruple by working that hard on almost anything else, including growing carrots, selling ice cream and standing in public squares covered in silver paint – or, indeed, investing in a passive index tracker fund. A successful day trader is someone who makes an average of 6% in a bull market where the index returns 8%.
Expert guide to day trading
Hire a team of math prodigies, buy eleventy thousand million dollars’ worth of equipment, build a headquarters on the sea floor a mile off Manhattan to get data from the cable a femtosecond faster than your competitors, and start an algorithmic fund. Now you have a shot at making good money.
There is one more option. It is reliable, but unethical. On the internet, anyone can pretend to be anything. So people set up an online persona pretending to be a wolf of Wall Street and sell the dream of seven figures from a laptop to NEETs eager to go from their parents’ basement straight to a 200 meter yacht, without any of the “contributing to the economy”, “earning stuff” or “being any good at anything” incovenience inbetween. So square.
They will, of course, achieve nothing of the sort, but they may give you money for the hope.
Most “Make money online” advice inevitably boils down to one or more of the following: banal or alternately shitty trading strategies, 20 page ebooks (often about selling ebooks), affiliate marketing for unregulated dietary supplements, or dropshipping.
Dude, just buy their course. Don’t be a wageslave.#redpill#alpha#laptoplifestyle#hustle#grind#playboy#luxurylife#copyright#dropshipping#entrepreneur#models#lambos#yachts#oils#wholepigs#tikitorches#macncheese#cash#jewels
Am I doing this right?
— Erin Michael (@Erin_Michael17) August 28, 2018
In most forms, it’s basically multilevel marketing, of course.
Living the dream, man. If there’s one thing we know about billionaire jetsetters and titans of industry with penthouses and yachts and private islands who sucks oysters out of the bellybuttons of 17 year old Brazilian models, it’s that they got there by daytrading Venezuelan junk bonds with their $2000 in savings after buying a course from a fraud pretending to be a jetsetter on Twitter, or shilling cannabis oil and ebooks through a newsletter with 200 subscribers.
(By they way, I’ll have you know my own newsletter has many more subscribers, sells nothing, and provides a lot – you can join on the top right!)
Understand that in this game, branding is everything. Calling yourself “Joe’s Online Entrepreneurship and Financial Advice” won’t do. You have to be “Wall Street Elite Riviera Alpha Playboy Club of Lambos, Boobs and Bespoke” or such. Go wild. Remember, your target audience are NEETs lusting for a James Bond lifestyle without putting in any work or having any skills, or even getting off their laptops, like you. It’s pretty easy to impress them, because they want to believe.
It helps if you can briefly make the acquaintance of some cokehead rapper or terminally dim riviera heir type, and take pictures with their expensive toys and girlfriends/boyfriends to impress your followers on Instagram and Twitter. If you can’t even persuade a vapid 17 year old trust fund chlamydia-riddled trout-shouldered pink polo douchebag in St.Tropez to make your acquaintance for a week, you can always rent a Lambo or yacht specifically for the social media photoshoot.
There are, apparently, people who pull interesting incomes doing this (though their own statements are obviously exaggerated by at least an order of magnitude). It’s entirely fraudulent, they’re all con artists, but it works.
To dispel any misunderstanding, I’m not actually advocating this – I want to put the douchecanoes who are doing it into a giant blender and feed the resulting pink goo to toothless elderly dogs as a gesture of humanitarian goodwill. The point is that it’s the easiest way to make money online with the whole Wall Street deal – pretend you’re doing it, while actually being in the business of selling the dream to gullible, lazy, greedy morons. Still has a higher success rate than day trading.
Another way is to write viral articles about it for smart, sexy, successful people, and wait for the ad revenue and patreon donations to roll in.
So, how do you make Wall Street work for you? If you want to get rich quick, do something else. The only people who make good money on the markets either have vast capital (so even a few percent is millions), or access to other people’s vast capital and tools you cannot replicate tapping on your phone in the toilet (investment bankers, fund managers, quant traders).
If you want security and a steadily growing nest egg, the best advice is to just put half your free income in a passive fund and let compound interest work. It is a miracle, and your best option, at least until the Wisdomination hedge fund gets going.
The best investment is in your own betterment. That’s why you should support Wisdomination, and read it religiously.