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I think the individual retail trader is almost always outgunned informationally when it comes to intraday trades. Most short-term price action is driven by orde

I think the individual retail trader is almost always outgunned informationally when it comes to intraday trades. Most short-term price action is driven by order flow and cross-asset correlations, which machines are very good at trading. They are often net trading cost earners due to rebates and capturing bid-offer spreads. That means their win rate doesn't need to be as high, so they can pull the trigger on a trade before you can, just by having lower fees and superior execution. In addition to that, they're faster, more scalable, have more access to liquidity, and are more disciplined than humans could ever be. For the ones who trade off statistical correlations, they have the best data and armies of PhDs working on signals. There are some event-driven fast trades still done by humans, like after news or responding to economic releases, but hedge funds have highly-educated people modeling the effects of an interest rate change or earnings release as their full-time job. This area is also becoming dominated by bots doing sentiment analysis. I think the retail trader could have an edge in a few ways. One would be an illegal edge like inside information or market manipulation. Another would be finding illiquid stocks that proprietary traders and hedge funds won't bother with and trading using similar techniques. You could also look for extreme situations that model-based traders can't understand well due to lack of data, like a merger target breaking away. Those trades would be very risky though. FWIW I'm a professional trader and never day trade my own account or pick individual stocks. My company allows it, but I don't believe I have any edge in doing so. I just buy and hold a portfolio of ETFs.

gedrap 10y ago
Thanks for a great answer! Similar threads keep popping up quite often here and I can see why. It probably seems romantic and all that to beat the machines, beat the armies of PhDs and make some real cash. But for a retail trader, it probably can be summed as 'don't bother, you are strongly against all odds, proceed only if it is fun to do and don't expect to make any money and lose all'.
RubyMyDear 10y ago
So, if you believe in this sort of analysis at all, why doesn't the individual retail trader do "week trading" or "month trading" where the effects of machine trading may be smaller? (Disclaimer: I'm a "buy and hold" guy. Of broad-based mutual funds. And I beat 80% of day traders...)
jnordwick 10y ago
Event driven trades are definitely not done by humans, especially when they are scheduled such a economic releases or some other periodically released number. These are all computer driven. (I have written these for HFT shops for years now.) Working on the pro side too, I also just hold ETFs mostly. No way an amateur day trader beats me at my job except by luck or finding trades too small for me to really care about.
- yfhsjjskc 10y ago
  Out of curiosity - do you get some kind of template version of the earnings report before it is released so you can parse the numbers? Are they just always worded the same way? Or do they broadcast the numbers directly somehow?
  - HockeyPlayer 10y ago
    Depends on the release, but generally the numbers are released in a consistent machine-readable format.
  - jnordwick 10y ago
    Earnings reports are the worst. Most of the economic numbers and other statistics are released in a machine readable format by a few companies that compete on speed. (There are some anomalies that come over the web and they are horrible to deal with.) Earnings reports though I've tried numerous things from subscribing to services that release numbers electrically to writing parsers based on prior reports. Earnings though you care about things like one time charges, gaap and non-gaap numbers, etc. They are one of the less consistent things to trade.
qznc 10y ago
I believe there sometimes are opportunities you can take, because a "Hacker" knows more about some parts of the world than most traders. My prime example: When Apple released the iPad it quickly became a great hit. For me it was obvious that a lot of cheap copycats would spawn soon. What would you use for a cheap iPad knockoff? An ARM processor for sure. Strategy: Buy ARM and hold for years. First iPad was released April 2010. ARM.F [0] at $3. By the end of 2010 it was near $6. Now near $20. The problem is, such opportunities are rare. [0] https://finance.yahoo.com/quote/ARM.F https://finance.yahoo.com/quote/ARM.F
- jomamaxx 10y ago
  "My prime example: When Apple released the iPad it quickly became a great hit. For me it was obvious that a lot of cheap copycats would spawn soon. What would you use for a cheap iPad knockoff? An ARM processor for sure. Strategy: Buy ARM and hold for years. F" Do you think that Wall Street hasn't figured that out? Apple is one of the most watched stocks in the world. To the original commenters point: the banks have reams of 'technically astute' Analysts making those assessments, and much, much, more. Wall Street has people all the way up and down Apple's value chain. They pay 'consultants' the world over to eek out any tiny bit of information WRT Apple's supply chain. Again - I agree with the original commenter: individual traders are severely outgunned when it comes to these things and that's why they lose money. Yes - theoretically, there are some very narrow areas where a savvy investor might be able to win, and surely, Wall St. has some gaping systematic problems ... but by enlarge, I agree with the sentiment of the analysis as well, even as other have pointed out flaws. Investing is 90% gambling. The world only has so much GDP growth and there's not enough to go around to make every investor super happy. Most returns that an investor makes are someone else's loss. The losers are usually those with less information, or are lazy about it all (like some 'big dumb funds')
  - TheOtherHobbes 10y ago
    >Do you think that Wall Street hasn't figured that out? Yes, I think Wall St hasn't figured that out. Sentiment regresses to the mean, and so do analyst expectations. If Wall St had figured out what the iPad meant there would have been a huge rush towards ARM. That didn't happen. There's your answer. It's also worth pointing there's a big difference between tactical short-term trading and strategic long-term trading. Short-term trading is not a winning option for non-professionals. Long-term trading can be, because - here's the obvious point - most traders are looking for quick returns. Unspectacular stocks with robust longer term returns tend to be systematically undervalued - more so if they're in a specialised technical niche not many people understand. Conversely stocks with a good historical record but signs of a less robust future tend to be overvalued. There's a huge amount of fashion and trend-following on Wall St. People who research fundamentals in depth - like Warren Buffet - are very much the exception.
empath75 10y ago
I made a >100% return in the last 6 months by buying companies that made products that I understand and use frequently: nvidia and Amazon. I think if you focus on particular industries that you know well you can get an edge on 'the market'. I'm not day trading though, I'm just keeping an eye out for opportunities and trying to balance as much as I can. I'm also just playing with a small IRA account that I can afford to lose.
- resolaibohp 10y ago
  You could have picked almost any company and made a great return in the last 6 months, assuming you did not buy at the all time highs. The market is reaching record highs right now, so it is easy to believe you have an edge as the times are good. I would not go so far to say that simply buying companies of products you buy and understand is a viable trading strategy that will give you an edge for >100% returns. When the market is in a downturn this could be very different.
  - calebgilbert 10y ago
    "You could have picked almost any company and made a great return in the last 6 months" - exactly. Like crowing about being a great stock picker in '99. So was everyone.
- gnaritas 10y ago
  > made a >100% return in the last 6 months by buying companies that made products that I understand and use frequently: nvidia and Amazon. https://en.wikipedia.org/wiki/Post_hoc_ergo_propter_hoc https://en.wikipedia.org/wiki/Post_hoc_ergo_propter_hoc You're making a logical error of assuming that because you made money, your actions caused it, that's not a valid assumption. It's a bull market, that doesn't mean you're a good stock picker.
nicholas73 10y ago
I agree with what you say, and I actually have grown to appreciate what the bots are doing. They basically do the supply/demand discovery for you and you can trade off of this information. Especially for stocks you follow that haven't moved yet. Example: back in February crude prices crashed, and the weekly EIA reports were very bearish. But the bots bought the initial drop on report release and crude strongly rallied after each bearish report. Maybe that's the time to buy oil stocks :)

gedrap 10y ago

Thanks for a great answer! Similar threads keep popping up quite often here and I can see why. It probably seems romantic and all that to beat the machines, beat the armies of PhDs and make some real cash. But for a retail trader, it probably can be summed as 'don't bother, you are strongly against all odds, proceed only if it is fun to do and don't expect to make any money and lose all'.

RubyMyDear 10y ago

So, if you believe in this sort of analysis at all, why doesn't the individual retail trader do "week trading" or "month trading" where the effects of machine trading may be smaller? (Disclaimer: I'm a "buy and hold" guy. Of broad-based mutual funds. And I beat 80% of day traders...)

jnordwick 10y ago

Event driven trades are definitely not done by humans, especially when they are scheduled such a economic releases or some other periodically released number. These are all computer driven. (I have written these for HFT shops for years now.) Working on the pro side too, I also just hold ETFs mostly. No way an amateur day trader beats me at my job except by luck or finding trades too small for me to really care about.

yfhsjjskc 10y ago
Out of curiosity - do you get some kind of template version of the earnings report before it is released so you can parse the numbers? Are they just always worded the same way? Or do they broadcast the numbers directly somehow?
- HockeyPlayer 10y ago
  Depends on the release, but generally the numbers are released in a consistent machine-readable format.
- jnordwick 10y ago
  Earnings reports are the worst. Most of the economic numbers and other statistics are released in a machine readable format by a few companies that compete on speed. (There are some anomalies that come over the web and they are horrible to deal with.) Earnings reports though I've tried numerous things from subscribing to services that release numbers electrically to writing parsers based on prior reports. Earnings though you care about things like one time charges, gaap and non-gaap numbers, etc. They are one of the less consistent things to trade.

qznc 10y ago

I believe there sometimes are opportunities you can take, because a "Hacker" knows more about some parts of the world than most traders. My prime example: When Apple released the iPad it quickly became a great hit. For me it was obvious that a lot of cheap copycats would spawn soon. What would you use for a cheap iPad knockoff? An ARM processor for sure. Strategy: Buy ARM and hold for years. First iPad was released April 2010. ARM.F [0] at $3. By the end of 2010 it was near $6. Now near $20. The problem is, such opportunities are rare. [0] https://finance.yahoo.com/quote/ARM.F https://finance.yahoo.com/quote/ARM.F

jomamaxx 10y ago
"My prime example: When Apple released the iPad it quickly became a great hit. For me it was obvious that a lot of cheap copycats would spawn soon. What would you use for a cheap iPad knockoff? An ARM processor for sure. Strategy: Buy ARM and hold for years. F" Do you think that Wall Street hasn't figured that out? Apple is one of the most watched stocks in the world. To the original commenters point: the banks have reams of 'technically astute' Analysts making those assessments, and much, much, more. Wall Street has people all the way up and down Apple's value chain. They pay 'consultants' the world over to eek out any tiny bit of information WRT Apple's supply chain. Again - I agree with the original commenter: individual traders are severely outgunned when it comes to these things and that's why they lose money. Yes - theoretically, there are some very narrow areas where a savvy investor might be able to win, and surely, Wall St. has some gaping systematic problems ... but by enlarge, I agree with the sentiment of the analysis as well, even as other have pointed out flaws. Investing is 90% gambling. The world only has so much GDP growth and there's not enough to go around to make every investor super happy. Most returns that an investor makes are someone else's loss. The losers are usually those with less information, or are lazy about it all (like some 'big dumb funds')
- TheOtherHobbes 10y ago
  >Do you think that Wall Street hasn't figured that out? Yes, I think Wall St hasn't figured that out. Sentiment regresses to the mean, and so do analyst expectations. If Wall St had figured out what the iPad meant there would have been a huge rush towards ARM. That didn't happen. There's your answer. It's also worth pointing there's a big difference between tactical short-term trading and strategic long-term trading. Short-term trading is not a winning option for non-professionals. Long-term trading can be, because - here's the obvious point - most traders are looking for quick returns. Unspectacular stocks with robust longer term returns tend to be systematically undervalued - more so if they're in a specialised technical niche not many people understand. Conversely stocks with a good historical record but signs of a less robust future tend to be overvalued. There's a huge amount of fashion and trend-following on Wall St. People who research fundamentals in depth - like Warren Buffet - are very much the exception.

empath75 10y ago

I made a >100% return in the last 6 months by buying companies that made products that I understand and use frequently: nvidia and Amazon. I think if you focus on particular industries that you know well you can get an edge on 'the market'. I'm not day trading though, I'm just keeping an eye out for opportunities and trying to balance as much as I can. I'm also just playing with a small IRA account that I can afford to lose.

resolaibohp 10y ago
You could have picked almost any company and made a great return in the last 6 months, assuming you did not buy at the all time highs. The market is reaching record highs right now, so it is easy to believe you have an edge as the times are good. I would not go so far to say that simply buying companies of products you buy and understand is a viable trading strategy that will give you an edge for >100% returns. When the market is in a downturn this could be very different.
- calebgilbert 10y ago
  "You could have picked almost any company and made a great return in the last 6 months" - exactly. Like crowing about being a great stock picker in '99. So was everyone.
gnaritas 10y ago
> made a >100% return in the last 6 months by buying companies that made products that I understand and use frequently: nvidia and Amazon. https://en.wikipedia.org/wiki/Post_hoc_ergo_propter_hoc https://en.wikipedia.org/wiki/Post_hoc_ergo_propter_hoc You're making a logical error of assuming that because you made money, your actions caused it, that's not a valid assumption. It's a bull market, that doesn't mean you're a good stock picker.

nicholas73 10y ago

I agree with what you say, and I actually have grown to appreciate what the bots are doing. They basically do the supply/demand discovery for you and you can trade off of this information. Especially for stocks you follow that haven't moved yet. Example: back in February crude prices crashed, and the weekly EIA reports were very bearish. But the bots bought the initial drop on report release and crude strongly rallied after each bearish report. Maybe that's the time to buy oil stocks :)