Why I Most Likely Never Daytrade Again

www.tombstonebuilder.com

I’ve been quiet for some time, both for day- and swingtrading. The reason is quite simple: In January 2018 I decided to take a one year sabbatical from daytrading. Two years later and I’ve still not made any efforts to get back into the game. And, quite frankly, I doubt I will ever daytrade again. I stopped due to poor performance from mid-2017 and lack of motivation, the latter probably a result of the former. I guess I was tired of the routine of trading, doing mostly the same day in and day out for about 17 years. My temporary break has by now turned into something permanent. However, I’m still doing swingtrading using Amibroker and Interactive Brokers.

My personal opinion is that daytrading is much more difficult now than earlier due to automation, or I simply have not managed to keep up and changing. No matter what, to increase my motivation, I had a look at at my numbers from when I started out in September 2001 until I stopped 31st of January 2018.

This is the accumulated profits from start to finish (2001 – 2018):

Some facts:

  • 3 973 days of trading.
  • 3 202 winning days, a win-ratio of 80.5%.
  • My best period, 2004 until end of 2009, had 1392 winning days and only 114 losing days, a win ratio of 93%.
  • An average winning day was on average three times bigger than an average losing day for the whole period.
  • Best year was 2008. Nine losing days of 254 trading days. Most money made on the long side by providing liquidity.
  • Best month: October 2008.
  • It’s a number’s game. For example, in 2008 I (and my colleague) traded almost 65 million shares. The average gain per trade, expressed in cents per share, is low. The gains come from high turnover, many strategies and many different tickers (probably around 100 different tickers traded per day).
  • Most of the trading was performed semi-automatic using a script in Excel. Nothing fancy at all, really low cost.
  • Strategies were based on numbers and statistics of price series. No technical analysis.
  • All my strategies went “cold” in 2005 and 2011. Both times I worked very hard to adapt, resulting in stronger results post 2005. I was less successful in 2011 in finding new strategies.

What contributed to these pretty solid numbers? I would like to call it intelligence and skills, but I think the result is a lot more complex than that. Being at the right time at the right place was a huge contributor. Most of my gains came from providing liquidity at certain times of the day, and this simply does not work so well anymore.

2011 was a difficult year where most of my strategies went cold and I had to redo and find other strategies. I was mildly successful at that until mid 2017, where most strategies stopped working again. At this time I was pretty tired of daytrading and made the decision to call it a day in early 2018 if it didn’t improve.

The aim has always been to try to get back in. However, this has turned much more difficult than anticipated. I think it’s quite similar in sports: after a serious injury it’s hard to start all over again. You need a strong inner drive to get back on track, and in many ways it’s like starting from scratch.

To summarize, below are some random additional arguments why I have not returned to daytrading:

  • My opportunity cost has increased, meaning my time and capital has increased its value and utility on other projects. This is not only monetary variables, but more due to intangibles. Currently I spend my time reading, learning, thinking, writing, investing and exercising, and I can’t think of much better ways to spend my time. Daytrading has provided me some valuable f***-off money.
  • Daytrading is very much a zero-sum game with no tailwind from long-term appreciation.
  • The game is quite different from what it was ten years ago. Automation, artificial intelligence, more and better capitalized players have, in my opinion, made it much more difficult to make money. I guess many will disagree and claim I have not managed to adapt. Perhaps the latter is true, or perhaps it’s a combination.
  • My former colleague says there are many still making good money daytrading. I say: it sure is, but mostly by randomness. How many of those are still making good money five or ten years later? Not many.
  • Daytrading is time consuming. Constant testing and implementation of strategies require long hours, and it makes you stuck in front of the computer, meaning I can’t spend my time in the hammock reading.
  • Annual taxes eat into profits and makes compounding difficult.
  • As I get older I think I lose my risk tolerance.
  • Regulation has both in 2005 and 2011 been a contributor for poor performance. Investing is less likely disrupted.
  • Lack of motivation. I’m an avid reader and found out that reading, writing and thinking are much more enjoyable than having the rigid structure that daytrading requires.