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Of course all their short term trades were profitable. You guys are
all missing the point. These daytraders are the remnant of the old
SOES bandits. If they had a profit they exited the trade. Anything
that went down became a longer term hold. They were simply scalpers
paying too high of a commission and having too much leverage available.
A profitable trade was flipped quickly and losses were let run. The
real lesson here is that:
<P>1. You need to be well capitalized to trade ... if you are undercapitalized
you trade too frequently(or you have to set stops too tight). Now
you are in effect over trading with too high a total friction(Commission
+ b/a spread). The report mentions that a typical trade at ALL TECH
cost $25 vs the industry norm of closed to $15 so
<P>2. Minimize friction .... keep your transaction costs low. This
would give an edge to traders at home using brokers(where the order flow
can be resold and therefore the transaction costs are lower{for know while
there is still some value in selling flow}as opposed to "daytrading" rooms.
<P>3. The trend of the market was irrelevant. It wouldn't matter
if the market had gone up 500% or down 500% for these "daytraders" they
were merely trying to benefit from intraday volatility which has been huge
as of late{probably because of their activity}.
<P>4. So combine a bad strategy .... friction that was too high .... huge
intraday volatility and what do you get? An as expected normal distribution
of outcomes....... before costs about 1/6 of them should
have made money .... 2/3rds should have about broke even....and 1/6 should
have lost money. Now odd outrageous transaction costs and excess
leverage and BOOM!
<P>RAY RAFFURTY wrote:
<BLOCKQUOTE TYPE=CITE><STYLE></STYLE>
Hi Doug, This is a direct quote
copied from the report: <I>"Exhibit G shows that <B><U><FONT COLOR="#FF0000">ALL
</FONT></U></B>of the trades held 3 days or less were profitable..."</I> repeat <I>"Exhibit
G shows that <B><U><FONT COLOR="#FF0000">ALL </FONT></U></B>of the trades
held 3 days or less were profitable..."</I> <FONT COLOR="#000000">"...</FONT><B><U><FONT COLOR="#FF0000">ALL
</FONT></U></B>of the trades..." All of the losses occurred on trades
held for more than three days. My point is this "report" (read witch
hunt) has deliberately distorted the facts to create an indictment of day
trading! There are valuable lessons to be learned from the portion
of the report <FONT FACE="Arial">titled:</FONT>
<P> "Day Trading, <FONT FACE="Arial">An Analysis of Public Day Trading
at a Retail Day Trading Firm"</FONT>
<P>The rest of the conclusions drawn by the government regulators are pure
garbage.
<P>
Good luck and good trading,
Ray Raffurty ----- Original Message -----From: Doug Penny
<pennyd@xxxxxxxxxxxxxxxxx>To:
RAY RAFFURTY <rrraff@xxxxxxxx>Cc:
BrentinUtahsDixie <brente@xxxxxxxxxxxx>;
<realtraders@xxxxxxxxxxxx>;
<Realtraders@xxxxxxxxxxxxx>Sent:
Tuesday, August 10, 1999 10:24 AMSubject: Re: RT_GEN: Day Trading News >
I think the conclusions were fairly valid. Have you ever run a risk of
ruin over
<BR>> your own system. Maybe some would have been profitable if less than
10% of
<BR>> capital was risked on each trade but obviously they had no idea as
to the real
<BR>> risk
<BR>>
<BR>> Doug
<BR>>
<BR>> RAY RAFFURTY wrote:
<BR>>
<BR>> > Hi Brent,
<BR>> >
<BR>> > They started with 30 accounts, but thru out 4 because they where
traded by
<BR>> > the same person, leaving 26. If you read further, 9 accounts
had less than
<BR>> > 30 trades and where statistically insignificant. They where
thrown out,
<BR>> > leaving 17 accounts.
<BR>> >
<BR>> > Five of the six winning accounts where thrown out because they
took high
<BR>> > risks, and according to them, will become losers sooner or later.
Well,
<BR>> > maybe, but they can not prove it.
<BR>> >
<BR>> > Seems to me the numbers where both manipulated and to small a sample.
<BR>> >
<BR>> >
Good luck and good trading,
<BR>> >
<BR>> >
Ray Raffurty
<BR>> >
<BR>> > ----- Original Message -----
<BR>> > From: BrentinUtahsDixie <brente@xxxxxxxxxxxx>
<BR>> > To: RAY RAFFURTY <rrraff@xxxxxxxx>;
<realtraders@xxxxxxxxxxxx>
<BR>> > Cc: <Realtraders@xxxxxxxxxxxxx>
<BR>> > Sent: Monday, August 09, 1999 8:33 PM
<BR>> > Subject: Re: RT_GEN: Day Trading News
<BR>> >
<BR>> > > >As I understand this report, it used a very small sampling of
day traders
<BR>> > > >from one office in Mass. It samples only 17 individuals
of which 6 where
<BR>> > > >making money.
<BR>> > >
<BR>> > > It's not quite the way Ray heard it, although the sample was
small. Pasted
<BR>> > > below is the info from the report.
<BR>> > >
<BR>> > > Brent
<BR>> > >
<BR>> > >
<BR>> > > Analysis of Customers' Day Trading Accounts
<BR>> > >
<BR>> > > Thirty (30) short-term trading accounts were randomly selected
for
<BR>> > analysis
<BR>> > > from accounts that had been maintained at the Watertown, Massachusetts
<BR>> > > office of All-Tech in 1997 and 1998. Copies of customer account
statements
<BR>> > > had been obtained in connection with Massachusetts' proceeding
against
<BR>> > > All-Tech.
<BR>> > >
<BR>> > > The Project Group retained Erik Sikowitz of STZ Analytical Services
in New
<BR>> > > York, New York to tabulate account statement data and quantify
trading
<BR>> > > activity. Mr. Sikowitz made calculations of profits and losses;
<BR>> > commissions;
<BR>> > > turnover; and cost-to-equity ratios.
<BR>> > >
<BR>> > > The Project Group retained Ronald L. Johnson, a Securities and
Futures
<BR>> > > Consultant, of Palm Harbor, Florida to analyze and evaluate the
trading
<BR>> > > performance of the accounts. Mr. Johnson's findings and conclusions
are as
<BR>> > > follows:
<BR>> > >
<BR>> > > The average account was open four months, had an average annual
turnover
<BR>> > of
<BR>> > > 278, and a cost/equity ratio of 56%. Six of the accounts were
traded by
<BR>> > two
<BR>> > > individuals so four accounts were removed to avoid skewing the
performance
<BR>> > > analyses.
<BR>> > > All trading in the accounts was analyzed and evaluated (4,093
trades in 26
<BR>> > > accounts). Seventy percent of the accounts lost money and were
traded in a
<BR>> > > manner that realized a 100% Risk of Ruin (loss of all funds).
<BR>> > > Only three accounts of the twenty-six evaluated (11.5% of the
sample),
<BR>> > > evidenced the ability to conduct profitable short-term trading.
<BR>> > > The statistically significant day trading (2,754 trades in 17
accounts)
<BR>> > was
<BR>> > > evaluated. Sixty-five percent of the accounts lost money and
were traded
<BR>> > in
<BR>> > > a manner that realized a 100% Risk of Ruin (loss of all funds)
<BR>> > > There was only one successful day trading account in the 17 accounts
<BR>> > > analyzed, and this account did not have trading returns commensurate
with
<BR>> > > the risks to which the account was exposed.
<BR>> > > The most successful account in the study had limited short-term
trading
<BR>> > and
<BR>> > > no day trading.
<BR>> > >
<BR>> > >
<BR>> > >
<BR>> > >
<BR>>
<BR>></BLOCKQUOTE>
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</x-html>From ???@??? Tue Aug 10 20:11:20 1999
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From: "Larry Muir" <trdoptions@xxxxxxxxxxx>
To: realtraders@xxxxxxxxxxxx
Subject: Fwd: Charles Peabody - "On the money" once again !!!!
Date: Tue, 10 Aug 1999 18:42:36 PDT
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Status:
this is an ongoing story;
>From: LePatron@xxxxxxxxxxxxxxxxxxx
>To: trdoptions@xxxxxxxxxxx
>Subject: Charles Peabody - "On the money" once again !!!!
>Date: Tue, 10 Aug 1999 10:25:02 -0400
>
>Le Metropole members,
>
>Charles Peabody is back from a well deserved vacation
>and has served commentaries to you at the
>Hemingway Table entitled, "Credit Quality - The Up and
>Coming Problem" and "Financial Engineering Masks
>Industry Credit Deterioration."
>
>Long time Cafe members know how right Charles has been
>in his calls. For you new members, he was one of only
>TWO mainstream economists/analysits that called for
>the long bond to have a 6% handle on it at the end of
>last year. He also informed Cafe members that he felt
>that the financial problems that surfaced during the
>LTCM bailout were not resolved. Charles said that they
>were just pushed foward and, in some cases, transferred
>to the money center banks. He also told us that there
>would be "unintended consequences" from the bailout and
>the 3 U.S. interest rate cuts engineered by Alan
>Greesnspan.
>
>He also told the Cafe to expect a banking stock crash of
>sorts. As I email this to you, the banking index is
>being clobbered again and making new lows. Many of the
>well known BANKS are trading 40% to 50% off their highs-
>already.
>
>There is no more "on the money" banking analyst anywhere -
>and Charles commentary must be heeded. For if the banks
>go tanko, can the rest of the market be far behind?
>
><A HREF="http://www.lemetropolecafe.com/scripts/products.cfm";>Le Metrople
>Cafe</A>
>
>All the best,
>
>Bill Murphy
>Le Patron
>
>
>
>
>
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