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Daytrading with Triple Long: What can go wrong?

JEDI

JEDI

Lifer
From this thread:
http://forums.anandtech.com/showthread.php?t=2171334


day traders margin = 4x margin
Stock = UPRO (Triple long). It corresponds to triple (300&#37😉 the daily performance of the S&P 500®.

so $10k cash = 40k daytraders margin = 120k if you buy UPRO.
you're leveraging $10k by a factor of 12!

Now buy UPRO (currently $70/share) after a pattern of it rising for 5 min. Sell when:
1) it's risen 1/2%
2) it falls to within $0.01/share of the price you bought it at. (After UPRO rises $0.02, set a stop loss at $0.01)

Rinse repeat. you can do it on your Lunch hour for some quick $.
note: there will be days where you wont spot a solid rising pattern due to the market being chopy. be patient and wait for it.

I think Wells Fargo offers free trades if you have X amount in the account.


So whats wrong w/my theory?
 
JEDI said:
From this thread:
http://forums.anandtech.com/showthread.php?t=2171334


day traders margin = 4x margin
Stock = UPRO (Triple long). It corresponds to triple (300%) the daily performance of the S&P 500®.

so $10k cash = 40k daytraders margin = 120k if you buy UPRO.
you're leveraging $10k by a factor of 12!

Now buy UPRO (currently $70/share) after a pattern of it rising for 5 min. Sell when:
1) it's risen 1/2%
2) it falls to within $0.01/share of the price you bought it at. (After UPRO rises $0.02, set a stop loss at $0.01)

Rinse repeat. you can do it on your Lunch hour for some quick $.
note: there will be days where you wont spot a solid rising pattern due to the market being chopy. be patient and wait for it.

I think Wells Fargo offers free trades if you have X amount in the account.


So whats wrong w/my theory?
Click to expand...

That
 
Well in order to profit you'd likely exceed your free trades. There's a lot of fees involved with trading.

But what the fuck do I know?
 
Agree with halik.

Fees hurt you even more, but unless you have +expectancy in your trade, you'd still fail without fees.
 
These 3x levered ETFs have very strict margin requirements. Most brokerages will only allow 25% margin:

so $10k in account = $12.5k buying power on UPRO.

Also, don't forget that you need a minimum $25k funds to day trade, due to exchange restrictions. If you day trade (actually hold stocks for less than 3 working days) with less, your brokerage may be required to freeze your account.
 
Before you use real money setup a simulation. Then you won't have to take anybody's word about what's wrong with it, you'll see for yourself.
 
Doppel said:
Before you use real money setup a simulation. Then you won't have to take anybody's word about what's wrong with it, you'll see for yourself.
Click to expand...

Atleast until he sees the impact of crappy executions, losing money, and how the mental aspect of winning and losing impacts oneself. But sure, atleast enjoy it on paper first.

And the basic most common misconception of the OP is how things are easier with greater leverage.

Decision making > leverage
 
JEDI said:
From this thread:
http://forums.anandtech.com/showthread.php?t=2171334


day traders margin = 4x margin
Stock = UPRO (Triple long). It corresponds to triple (300%) the daily performance of the S&P 500®.

so $10k cash = 40k daytraders margin = 120k if you buy UPRO.
you're leveraging $10k by a factor of 12!

Now buy UPRO (currently $70/share) after a pattern of it rising for 5 min. Sell when:
1) it's risen 1/2%
2) it falls to within $0.01/share of the price you bought it at. (After UPRO rises $0.02, set a stop loss at $0.01)

Rinse repeat. you can do it on your Lunch hour for some quick $.
note: there will be days where you wont spot a solid rising pattern due to the market being chopy. be patient and wait for it.

I think Wells Fargo offers free trades if you have X amount in the account.


So whats wrong w/my theory?
Click to expand...

lol 1 cent stops on a 3x ETF? The computers will pwn you.
 
Sounds great. What's the statistic again? 43 out of 44 day traders lose all their money in the first year?
 
JEDI said:
huh?

explain pls
Click to expand...

There are computer trading programs specifically designed to beat traders like you. If you put a 1c stop on such a volatile stock, the overwhelming majority of your trades will be losers.

Let's say statistically/historically your trade works, the only way to implement it would be to write an algo and have your computer sell at the stop price when the bid quote hits it. Even then, if you start to win, the market makers and other traders will notice your trades and figure it out to manipulate your algo.
 
JS80 said:
There are computer trading programs specifically designed to beat traders like you. If you put a 1c stop on such a volatile stock, the overwhelming majority of your trades will be losers.

Let's say statistically/historically your trade works, the only way to implement it would be to write an algo and have your computer sell at the stop price when the bid quote hits it. Even then, if you start to win, the market makers and other traders will notice your trades and figure it out to manipulate your algo.
Click to expand...

I think you're overestimating his volume by several orders of magnitude. You seem to imply that he might originally be an expected winner (pretty much certainly not the case), and professionals will take time to specifically defeat him (certainly not true as well).
 
40-50x margin isn't uncommon for forex iirc (due to the much lower volatility.)

Two ways to lose money real quickly...using too much leverage (it works both ways), and too aggressive stops, since generally the more stops you have, the more you lose.They might limit potential for a huge loss, but by aggressively locking in losses or limiting gains, you also lock out potential profits (and at sh!tty prices.)
 
JS80 said:
There are computer trading programs specifically designed to beat traders like you. If you put a 1c stop on such a volatile stock, the overwhelming majority of your trades will be losers.

Let's say statistically/historically your trade works, the only way to implement it would be to write an algo and have your computer sell at the stop price when the bid quote hits it. Even then, if you start to win, the market makers and other traders will notice your trades and figure it out to manipulate your algo.
Click to expand...

why would people want to defeat my trade?

and how can they see my stop loss? i thoiught only ask/bid?
 
Juked07 said:
I think you're overestimating his volume by several orders of magnitude. You seem to imply that he might originally be an expected winner (pretty much certainly not the case), and professionals will take time to specifically defeat him (certainly not true as well).
Click to expand...

it's all algorithmic. It's not really a function of people crafting algorithms to specifically target him. It's more of a function of the fact that the system already accounts for simplistic trading patterns like this and he'd likely just get rolled up.

The thing is, at a 1c stop, you likely won't even need the computers. My guess is, one slightly slow execution and a decent sized shakeout and this will fail fantastically.
 
Your 1 tick stop will get filled 99.999... % of the time, given the expected volatility in 5 minute time frame.

Also 5 minute "pattern of rising" amounts to nothing but blind luck and certainly won't cover the million 1 tick losers you'll lock with the stops.
 
JEDI said:
From this thread:
http://forums.anandtech.com/showthread.php?t=2171334


day traders margin = 4x margin
Stock = UPRO (Triple long). It corresponds to triple (300%) the daily performance of the S&P 500®.

so $10k cash = 40k daytraders margin = 120k if you buy UPRO.
you're leveraging $10k by a factor of 12!

Now buy UPRO (currently $70/share) after a pattern of it rising for 5 min. Sell when:
1) it's risen 1/2%
2) it falls to within $0.01/share of the price you bought it at. (After UPRO rises $0.02, set a stop loss at $0.01)

Rinse repeat. you can do it on your Lunch hour for some quick $.
note: there will be days where you wont spot a solid rising pattern due to the market being chopy. be patient and wait for it.

I think Wells Fargo offers free trades if you have X amount in the account.


So whats wrong w/my theory?
Click to expand...

I don't understand what informational advantage you are exploiting with this strategy.

Day trading is best left to investment banks/hedge funds with the infrastructure to support it.

A safer way for you to make money in the markets is to study an industry you are familiar with, say you work in IT, then study the IT sector. And then invest wisely in stocks.

If you have any questions, let me know.

An easy way for you to simulate your model is to collate past price data (lets say for a year) and put it through Excel, with the relevant formulas telling you when you buy/sell etc. If you are into this stuff, read the book 'Way of the Turtle' by Curtis Faith. Alot of the ideas he mentions are appealing and the book is easy to read for beginners. Now keep in mind Curtis Faith, a once successful trader, has lost alot of his fortune in recent years, indicative in many ways that day trading is really a gamble.

/work in investment_bank + currently completing masters in quant. finance
 
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