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<DIV>Hi Doc,</DIV>
<DIV> </DIV>
<DIV>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.</DIV>
<DIV> </DIV>
<DIV>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"</DIV>
<DIV> </DIV>
<DIV>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.</DIV>
<DIV> </DIV>
<DIV>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.</DIV>
<DIV> </DIV>
<DIV>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.</DIV>
<DIV> </DIV>
<DIV>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.</DIV>
<DIV> </DIV>
<DIV>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.</DIV>
<DIV> </DIV>
<DIV>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.</DIV>
<DIV> </DIV>
<DIV>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.</DIV>
<DIV> </DIV>
<DIV>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.</DIV>
<DIV> </DIV>
<DIV>
Good
luck and good (day) trading,</DIV>
<DIV> </DIV>
<DIV>
Ray Raffurty</DIV>
<DIV> </DIV>
<DIV>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".</DIV>
<DIV> </DIV>
<DIV> </DIV>
<DIV> </DIV>
<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>
THE DOCTOR
</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> ; <A href="mailto:realtraders@xxxxxxxxxxxx";
title=realtraders@xxxxxxxxxxxx>realtraders@xxxxxxxxxxxx</A> ; <A
href="mailto:Realtraders@xxxxxxxxxxxxx";
title=Realtraders@xxxxxxxxxxxxx>Realtraders@xxxxxxxxxxxxx</A> </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>
<DIV><BR></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
<<A
href="mailto:pennyd@xxxxxxxxxxxxxxxxx";>pennyd@xxxxxxxxxxxxxxxxx</A>>To:
RAY RAFFURTY <rrraff@xxxxxxxx>Cc:
BrentinUtahsDixie <<A
href="mailto:brente@xxxxxxxxxxxx";>brente@xxxxxxxxxxxx</A>>; <<A
href="mailto:realtraders@xxxxxxxxxxxx";>realtraders@xxxxxxxxxxxx</A>>;
<<A
href="mailto:Realtraders@xxxxxxxxxxxxx";>Realtraders@xxxxxxxxxxxxx</A>>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 <<A
href="mailto:brente@xxxxxxxxxxxx";>brente@xxxxxxxxxxxx</A>> <BR>> >
To: RAY RAFFURTY <<A
href="mailto:rrraff@xxxxxxxx";>rrraff@xxxxxxxx</A>>; <<A
href="mailto:realtraders@xxxxxxxxxxxx";>realtraders@xxxxxxxxxxxx</A>>
<BR>> > Cc: <<A
href="mailto:Realtraders@xxxxxxxxxxxxx";>Realtraders@xxxxxxxxxxxxx</A>>
<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>></P></BLOCKQUOTE></BLOCKQUOTE></BODY></HTML>
</x-html>From ???@??? Wed Aug 11 13:20:27 1999
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Date: Wed, 11 Aug 1999 15:06:33 -0400
To: realtraders@xxxxxxxxxxxx
From: "G. Dunn" <gjbkdunn@xxxxxxxxxxx>
Subject: Gen: Day Trading Report
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Status:
Just got thru watching on CSPAN a National Press Club breifing by
regulators who did a study of Day Trading firms.
Notes I took were as follows: The "Industry" reports that there are about
5000 daytraders total and they create 15% of the daily NASD volume.
The regulators did a statistical study of individual account records from
one firm in Massachusetts and extrapolated the results.
They found:
The Cost/Equity ratio was 56%. That was defined to be the annual return
you have to make daytrading in order to pay for your Commissions and margin
fees.
11.5% of the accounts were profitable short term. i.e. 88.5% were not
profitable.
70% of trading accouts lost money and their risk or ruin was 100%
The study found daytraders cut profits short and let losses run.
After the report was given one question from the press basically asked
"what about the argument that you need to daytrade for 6 months in order to
learn and get good at it. Does this study take into account the experience
of the day traders." The guy who did the study responded that based on
his analysis of the data (records of the firm studied) the vast majority of
daytraders have lost all their money within the first 6 months.
Don't know if this study will be published someplace online.
Food for thought.....
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