Day trades v long term hold, page-2

@chuckfirth – Firstly we need to define “Day Trading”. Day Traders by definition liquidate all of their positions at the end of the day. They do not hold positions overnight as the risk in doing so is too high. Day Traders rely on extremely high volatility or leverage to make their trading a worthwhile endeavour. I think that HC Posters have mangled the definition to also refer to short term traders, similar to the way they mangled the term “ramping” as a general term for a Poster who doesn’t agree with their personal belief regarding a stock.

I personally don’t think there is a large degree of real “Day Trading” on these speculative stocks. There is however a large amount of short term trading. As a technical trader this makes sense to me. It’s the only way you can hope to make a reliable and consistent return on your capital. Have a look at the chart for OGX below. Simple rules like, wait for a high volume breakout in price to occur, buy when the bars are blue and the stochastic oscillator crosses its moving average in the up direction, sell when the stochastic crosses down from the overbought area, when the bars turn red stand aside. I count at least 4 successful trades making about 20% per trade and one trade where a 10% loss occurred.


Now just a note re why I don’t think there is a lot of real “Day Trading” on this type of stock.

Leverage – Who would lend you money to trade speculative low cap stocks? Not my Broker or Bank I know that. Can I use CFDs and trade OGX at margin – unfortunately NO!

Liquidity – Far too low compared to most ASX200 stocks, e.g. OGX average daily $’s traded currently is about $664k while CBA’s for instance is about $213M. Hence high risk re trade price slippage or desired trade price even being met at all.

Volatility – I use Average True Range (10 period) divided by the share price as an estimate of the return I expect from a trade. This figure for OGX is currently equal to 10.32%, hence this is the short term return I would expect. The same figure for CBA is 1.54% however using CFD's I can trade on margin of 5% which gives me a return on margin of 30.8% three times that of OGX.

Trade Direction – You would have to find a Broker who would lend you OGX shares if you wanted to short them. With CBA I can trade short with ease using a CFD.

So, I wouldn’t worry too much about real “Day Traders” as the ones who know what they are doing wouldn’t bother with stocks like OGX. Short Term Trading of course does occur, it’s only natural and sensible. I also believe that short term trading is most prevalent when the SP is in uptrend and you won’t find Posters complaining about them that much then. HC Posters on the FA threads tend to be the “Hold and Hope” type and quite often like to use terms like “down ramper” to criticise Posters who don’t agree with them. If I was you I would disregard the contents of any post that uses the “ramp” term or the “Day Trader” term. The other thing I’ve discovered is that “FA” on HC should be read as “SFA” meaning “Speculative Fundamental Analysis” and depending on the number of assumptions being made in their analysis can very quickly become the proverbial SFA! (ref: Occam’s Razor).

p.s. I also do not agree or condone the type of bullying evident in the previous post. I suggest you ignore it!