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Ray,
<P>I'm not certain you can make the case that the investigation was "politically
motivated"....regulators respond to customer complaints. I was in
Houston when they "hit" the BLOCK office and the regulators had dozens
of complaints in hand. We can argue the need for regulation forever,
in all fairness I work for the CBOE which is a regulator, and I can tell
you that what drives a regulator is not politics, but more the fear of
being viewed as OVERLOOKING a problem. The proponents of the "organized
day trading industry" rarely present a balanced view of the risks and rewards
and NOBODY talks about the excessive charges involved.
<P>Although I hate to draw the analogy between securities regulation and
the IRS ..... most of what the IRS uncovers doesn't come out of routine
audits. Most of the abuse is uncovered when someone reveals the abuse.
What a rotten way to do business. The regulators went in because
they were in receipt of lots and lots of complaints. The ability
to regulate has, in many instances, fallen to the states who have the ability
to regulate commerce inside of their borders. IMHO the states are the biggest
jerks because their folks are often not as skilled as the folks at the
SEC or CFTC. The states have become more aggressive over the last
few years because the courts have not denied their jurisdiction.
There are some really rotten people in this industry and there are some
really good people. It would be ideal if we could leave the nice
people alone and get the rotten ones out. The concern is "who" decides
who is rotten or good. Someone has to protect the lambs.
<P>RAY RAFFURTY wrote:
<BLOCKQUOTE TYPE=CITE> Hi Doc, I'm not missing the point and I agree
with almost every thing you said. The problem with this "report"
is not the issues you raise, but the fact that it is a politically motivated
witch hunt (substitute witch hunt for report thru out this post).
Regulators from the State of Mass. have been trying to shut down day trading
firms for years, it's an old story here. The "report", sponsored
in part by a regulator from Mass., was a forgone conclusion in search of
data to support it. They used 17 accounts all from one office in
Mass. (that key word again), to small a sample to be statistically significant.
Had the report been sponsored by The Institute for Day Trading (a made
up name) the title would have read "Day Trading, Profitable when Conducted
Properly" Furthermore, most of the charges made in the "report" can easily
apply to the brokerage industry as a whole, including such things as overstating
potential gains while minimizing potential losses. Oh please, give
me a break. At least they didn't promise a helicopter on the lawn;
or a Pacific Island (country); or even a big house with a boat, a huge
S.U.V., and a hotrod in the garage as online brokers do in their commercials.
I personally find these legal, subliminal messages more offensive than
an easy to see thru exaggeration. Another complaint contained in the report
was failure to adhere to the suitability requirement. They sited
one case where a trader lied on the form. What a joke. Did
my broker appraise my net worth, do a credit check, or even verify my income
before approving me for option trading? No, of course not, he simply
relied on my statements and a form to cover his ass. In fact there
is at least one law suit against a discount broker over just this issue.
The "report" also complained about a lack of training before allowing trading.
All day trading firms give some training and at least one gives 30 days.
My broker handed me a copy of "Characteristics and Risk of Standardized
Options" and then said "Nobody reads this anyway". All of my training
came by paying tuition (i.e. losses) and from my own reading, including
RT's, and hard work. The implication was made that day trading firms
where at best, indifferent to traders who failed, because they could simply
recruit new ones. Isn't that what all brokerage firms do? And,
the manager doesn't even come around to offer support. The truth
is any good firm wants traders to succeed for two selfish reasons:
It's cheaper to keep a client than recruit a new one; and successful clients
continue to trade, losers don't. Another complaint was about trading with
borrowed money. How is that different from borrowing $10,000 from
your parents to start a small business, knowing that 70% of all new businesses
fail in 2 years? Or, the once popular strategy of using a credit
card cash advance at 19.5% to buy Internet stocks!? The brokerage
industry said "Tisk, tisk" and took the money. The "report" writers commented
that the commissions charged, $25/trade where to high. Schwab, the
largest discount broker, charges $29.95 min. per trade. You point
out that brokers that receive legal kick-backs for order flow charge a
lower commission, however the trade off for this is larger spreads.
Even 1/8 larger spread costs the person trading thousands of shares far
more than the slightly lower commissions save. You correctly point out
cutting profits short and letting losses run is a formula for disaster.
Are you saying that the broker bears some responsibility to the client
when this occurs? If so, where do I apply for a refund of my dues?
This is part of the education of a trader, you can tell them till your
blue in the face, but until it happens, (sometimes more than once) few
will learn it, me included. Further the "report" surmises that since
all trades held less than 3 days were profitable, the traders MUST be cutting
there losses short. Without a through investigation of each trade
there is no way to prove this. The trader could just as well be protecting
his profits from a down turn in the market, an effective strategy.
The "report" goes on to state that all trades held longer than 3 days where
losers. Lets see; if I take a profit before 3 days, I'm cutting profits
short, but if I hold longer, I take a loss, so I must be letting my losses
run. Sounds like I'm dammed if I do and dammed if I don't, at least
in their eyes. I could go on, but I have already pointed out other inaccuracies
in the "report" in other posts. The funny thing is that I, as a trader,
should be defending the "report" since the complaints against day trading
firms can easily be extended to other brokers, trading methods (including
buy and hold), and even the exchanges, not to mention news letters, web
sites, computer programs, etc., thus making them responsible for any losses
incurred. Bill Clinton would be proud. On the other hand, you as a representative
of an exchange, should be outraged at a report that attacks a legitimate
brokerage business and is filled with politically motivated inaccuracies
and distortions. I absolutely agree with you that there are important lessons
to be learned about the psychology and methodology of trading contained
in the "report". Unfortunately these have been glossed over by the
authors and buried in an appendix in an unmitigated search for sensationalism
and headlines.
Good luck and good (day) trading,
Ray Raffurty P.S. I have no connection with any brokerage of any
type, except as a customer, and do not engage in the type of trading discussed
in the "report".
<BLOCKQUOTE
style="BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; MARGIN-RIGHT: 0px; PADDING-LEFT: 5px; PADDING-RIGHT: 0px">
<DIV style="FONT: 10pt arial">----- Original Message -----</DIV>
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B>
<A HREF="mailto:droex@xxxxxxxxxxxx"; title="droex@xxxxxxxxxxxx">THE
DOCTOR</A></DIV>
<DIV style="FONT: 10pt arial"><B>To:</B> <A HREF="mailto:rrraff@xxxxxxxx"; title="rrraff@xxxxxxxx">RAY
RAFFURTY</A></DIV>
<DIV style="FONT: 10pt arial"><B>Cc:</B> <A HREF="mailto:pennyd@xxxxxxxxxxxxxxxxx"; title="pennyd@xxxxxxxxxxxxxxxxx">Doug
Penny</A> ; realtraders@xxxxxxxxxxxx
; Realtraders@xxxxxxxxxxxxx</DIV>
<DIV style="FONT: 10pt arial"><B>Sent:</B> Tuesday, August 10, 1999 8:05
PM</DIV>
<DIV style="FONT: 10pt arial"><B>Subject:</B> Re: RT_GEN: Day Trading News</DIV>
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>
</BLOCKQUOTE>
</BLOCKQUOTE>
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</x-html>From ???@??? Wed Aug 11 12:36:54 1999
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Date: Wed, 11 Aug 1999 10:48:23 -0700
From: "Norman E. Phair" <ericrogers@xxxxxxxxxxxxx>
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To: Alexander Levitin <alevitin@xxxxxxxx>
CC: Howard Hopkins <hehohop@xxxxxxxxxxx>, realtraders@xxxxxxxxxxxx
Subject: Re: FUT: Daily Sentiment Index
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Status:
Is anyone interested in my opinion of the market?
Alex.
I would rather have your opinion of the supermarket.
right now I am hungry. Or
a good joke that would make me laugh. If your market
opinion was any good
you would be on an enchanted island. I tell you what,
get 99
other opinions and I will do the opposite. Pick up
where Jake left off and
you can start a nice little business. I will be your
first subscriber.
Norman E.
Alexander Levitin wrote:
>
> Many years ago I talked with Jake Bernstein about it. At that time he
> selected a group of constant and persistent losers (people who were always
> wrong on the market) and they called him daily with their opinion of the
> market. Their opinion remarkable pinpointed turning points (at least on SP
> I was monitoring).
>
> I was on that list for some time (do not even dare to think why). The
> problem Jake had was the attrition. By the nature of the selection those
> people run out of the capital, quit trading and stop their interest in the
> market. At some point Jake (jokingly) considered to bankroll those people
> so they would continue their trading so good were their opinions. The group
> disappeared (to the best of my knowledge).
>
> Is anyone interested in my opinion of the market?
>
> Alex.
>
> At 09:24 AM 8/11/99 -0400, Howard Hopkins wrote:
> >Jake Bernstein talks about a Daily Sentiment Index for futures in his book
> >`Why Trdares Lose, How Traders Win`.
> >
> >Does anyone know of a daily or weekly measurement of futures traders
> >sentiment?
> >
> >Any suggestions in this area are appreciated.
> >
> >Thanks,
> >Howard
> >
> >
> >_______________________________________________________________
> >Get Free Email and Do More On The Web. Visit http://www.msn.com
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