Kuta Beach

Kuta Beach

Saturday, 26 April 2008

I Dream of Being a Full-Time Day Trader

I've written about my thoughts about being a day trader in a previous post. On the train I listened to a Smart Investing podcast by Robin Bowerman that claims that studies in behavioral finance show that many people believe they are seeing patterns in randomness. That is, if you flip a coin on an on, people observing it tend to think they can predict things or see patterns when in fact the coin flip really is just random. This comes from natural human instincts to see patterns in chaos in order to better understand the world.

This can be the case with day trading. Investors looking at the erratic intraday movements of price may perceive some trend, but maybe they are just fooling themselves.

Nevertheless, I still dream of one day getting away from it all. That is, no more lectures, no more assignments, no more shifts, no more talking to the boss--I can just pack up and make a living trading on my computer in the comfort of my own bedroom. Trading online is like playing computer games, and I love computer games.

The problem is that I just don't know how much money I could make. I am a highly risk-averse individual. This doesn't mean I haven't made mistakes. In fact, I've made many mistakes that I now regret, but from regret comes caution.

Being a day trader I think is also quite impressive. Imagine if you're at a dinner party. When people meet they usually ask, "So what do you do for a living?" Suppose I said, "I have enough money to retire. I just sit around all day watching TV." That's hardly going to impress anyone. However, if you say, "I trade shares and foreign exchange for a living. Yesterday I made $1000 shorting the Aussie dollar." A story like that really impresses people and makes them wonder too whether they might have the ability to day trade.

Of course, if markets are fully efficient and if day trading is a scam then I can always just closet index by putting 95 per cent of my portfolio in ETFs that follow the broad market and then with 5 per cent of my portfolio I could play around and invent stories based upon what I do with this 5 per cent. Since it's only 5 per cent, I don't lose much if I do lose anything at all.

Now that I think about it, this plan is the height of vanity and is really quite silly. If I would go to this length to look successful then why not just lie altogether?

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