Why I Prefer Day Trading

I am surprised at the number of articles I see that claim it is impossible to make money day trading. They are simply wrong. I make money day trading and I can prove it.

For years, I position traded various instruments over medium to long term time frames. Now I exclusively day trade futures contracts, because I like the consistent profits and the low risk.

I trade two futures markets, during the first 30 minutes of their primary trading sessions. I use simple support and resistance strategies based on taking defined actions if specific chart patterns occur during that opening half hour. If no pattern develops, I enter no trade.

If I put on a trade, I enter a limit order to take profit, a stop order for protection, and a market order to exit the position just prior to the end of the primary session. These orders are in an OCA (one cancels another) group, so I leave them working knowing that one of them will close the trade  before the session ends.

Critics of day trading often say you have to stay glued to the screen for an entire market session, but I find it is best to walk away once the trade is set and your contingent orders have been placed. Two thirty minute periods of focused concentration represent my work for the day.

Critics also say that day trading is a game for fools because short term market fluctuations are completely random and impossible to trade. I think this is nonsense. Suppose I printed the 1 minute bars from the chart of an S&P 500 session, and then printed a similar number of weekly bars for the same market. If I hide the labels and scales, I am confident nobody could tell me which chart is which. The fact is the short term market establishes support and resistance levels, trends and generally exhibits the same behaviours as the longer term markets.

There are differences, of course. Intra-day movements are smaller in absolute magnitude, so trades are smaller. Consequently, brokerage fees and slippage represent a much larger percentage of profits than for a longer term trader. So low fees and good fills are vital for success.  Fortunately, brokerage fees are very competitive now, and electronic markets with high liquidity have minimal slippage.

If day traders have strong discipline, follow a consistent routine and stick to predetermined trading plans, they have lower exposure to risk than longer term position traders.

Take the market turmoil sparked by the sub-prime mortgage problems in the US. I know position traders who took an absolute bath in this situation. In contrast, my trading did not change at all, despite the fact that one of the markets I trade is a US equity index!

No longer am I sweating on wildly volatile long term positions, as I was in the stock market after 9/11, in natural gas futures during 2002, or in live cattle futures after mad cow disease was identified in the US. In my experience, these freak events happen much more often than you might expect.

Believe me, if you are in the market with leveraged instruments, you want to minimize exposure – not extend it! Unless you want an ulcer, I recommend you are out of your positions whenever the market is closed or illiquid. The chances of blown stops, massive slippage, or being caught in limit moves is far higher if you hold positions through these periods.

Another reason I prefer day trading is consistency of profits. No matter what system you use, it will have losing streaks. If your average trade holding time is two or three weeks, draw-downs will often extend to months. Sometimes, even a good system may have a losing year!

In contrast, the day trader is in the market far more often. Losing streaks still occur, but they are over much sooner. Draw-downs tend to be relatively short – a few weeks at most. This is a huge positive in terms of cash flow, peace of mind, and general enjoyment of the process.

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