I stopped day trading in about 2020/21.
Why did I do this?
The market changed.
Throughout working in the city, I’d always traded a day trading account.
It worked really well.
But in 2020, something changed.
The market became considerably more efficient.
The effort to reward ended up vanishing and while you can definitely still find short term opportunities, I can’t be bothered spending my life trying to constantly refine and compete against very sophisticated algos and millions of dollar costs on infrastructure and talent.
Because that is the truth.
That’s really what you’re competing against – not any psychology bullshit that is telling you you’re doing something wrong because you’re thinking incorrectly.
At the base level, the market is extremely, extremely hard.
And I always ask myself the question why so many individuals keep trying to find said inefficiencies in traditional markets when they can simply extend their timeframe and do far less.
No it’s not as sexy, but what matters more?
Money or doing something sexy?
I’ll pick money every time.
I mentioned traditional markets above because actually, day trading crypto still has a lot of inefficiencies, but again, it takes a hell of a lot of understanding of where to trade (smaller venues) and where to offload risk (larger venues) as just one example.
Rarely in tradfi is an inefficiency like this available anymore (they are still available, but as I said, they might be fleeting and unavailable to most due to infrastructure constraints).
So how do I do it?
Well, at the base level it’s a focus on what factor to trade.
The one that has made the most money over the longest time is momentum.
Once we know that, we can add in a few other aspects into our view.
Momentum makes the most money consistently, and what is the biggest driver of stock market returns?
Earnings growth.
Which nation makes the most money?
The US.
So we have two drivers to include into a system.
Identifying momentum in US equities.
Right, but that’s not really a system.
What that is is sort of a grasp of something called risk premia.
Momentum trading over the longer run translates to trend formation.
Why are we compensated for holding a trend?
Because it’s really fucking boring and most people don’t want to do it.
In markets you’re compensated for taking on risk when others don’t want to.
So we are happy to find these drivers and build filtering systems on top to be able to find companies that are likely to exhibit the characteristics we want to see.
And these characteristics from the base level are likely going to be thematic.
Take future innovations where the share price is not yet factoring in said growth (OMG, you also trade value! Yes, sort of. A bit of discretion never goes amiss).
Using a few loose concepts then building objective ways to identify them is what we’re about.
Add in the element of time appreciation and you’re laughing.
But that’s only half the battle, since you need to be able to risk manage adequately.
I’ll tell you something.
Price targets are a fools game.
Imagine thinking you know when a market is going to top out.
Imagine being that arrogant.
How do you then exit a market?
You close your profitable position when it’s going against you in chunks to ensure you have the maximum left in according to objective volatility measures if momentum kicks in again.
We use moving averages to determine if momentum has died or not.
We also use volatility measures across different periods in certain stock sectors that might require a different way to view volatility.
For instance, it could be MORE useful to use a full knockout on a big cap tech stock because you know if it hits a 100 day ATR at the downside that it may no longer in fact be a big tech stock and might just be a middler for a while…
Which can be a signal to sell down that specific tech stock and shift into another that’s showing the momentum we objectify in our system.
Bear in mind, we want to hold maybe 10-12 stocks in our portfolio at one time.
Not a lot.
So it might sound like there’s a lot to do, but the last position I personally changed was in October, with the one before that being in July.
In the Fink Model Portfolio which is EXTREMELY passive…
The last change was in January!
Not a whole heap of change going on. No real bother in my personal life (which lets me talk shit on X all day).
But look, I’m pretending this is easy and people should just know this.
This comes from years of pain, years of success and years of speaking with people who know way more than me, as well as seeing portfolio managers who use similar (if not the same) methods in multi million dollar and pound funds.
And it’s just a small glimpse into how you might be able to change certain aspects of your approach.
As always, nothing is certain and we are dealing in a game of probabilities – if you want certainly, stick with a Cash ISA or money market funds!
But if you want outsized returns, there are some simple things you can do to achieve them.
You just need to Fink a little laterally.