Doing Day trading online, like the TSP

[Frizz B.]

How does one start doing the day trading, outside of using the brokers. I would like to be able to invest, using the S&P 500, an Internation Fund, The Wilshire 500 and a money market fund (like the G fund), without having to pay a big percentage for each transaction, and be able to make as many moves as I wish. Basically the same strategies we are using now with the TSP funds, but not have to wait till I retire.

Frizz B.

[ChuckBecker]

many, many choices, but one place to start:

www.etrade.com (http://www.etrade.com) ...

or any other online brokerage you choose.

Good luck,
Chuck

[Rolo]

hehehehe...I was thinking the same thing, using ETFs!

Symbol - Management fee - Fund

EFA - 0.35% - iShares MCSI EAFE Index (I)

IVV - 0.09% - iShares S&P500 (C)

IWM - 0.20% - iShares Russel 2000 (sub for S)

Scottrade charges $7 per trade, no limits, and can be on margin.

[Frizz B.]

I took a look at both traders, thanks. Will I be able to trade in the funds that Rolo provided, and if I can work with them, is there a G fund out there, where if I want to pull back for a while, I can still get that penny every 5 to 7 business days. I want to get my feet wet, does anyone else work with either of these two brokerages. They do have an 800 #, probably call Monday and start something up.

[Rolo]

I use Scottrade. http://www.scottrade.com They have local offices. You can request the application on the site.

The real-time quote feed is really nice.

Keeping cash in your account bears interest, .1%daily.

Samples from mine

I got 7 cents:
CR INT 4 DAYS @ .1% AVG CREDIT BALANCE 5,995.33

Here's your penny:
CR INT 1 DAY @ .1% AVG CREDIT BALANCE 2,078.88

I rarely have cash in it though. I usually have:
MGN INT 31 DAYS @ 5.45%; AVG DEBIT BALANCE 10,881.26

[Frizz B.]

Thanks for the tips, I am meeting with scottstrade today at 4 to get the paperwork started, I will wait to get my feet wet when the F differential is around 270. Then I am planning on using the F R O to work with my outside investing. I have done well with the TSP and I will be trying to use the same funds and strategies.

[Rolo]

I think I may be joining you in that endevour, especially since that will have the real-time advantage.

I hate not having a Wilshire 4500 ETF for accuracy; an approximation may throw the FRO system off. We need to find the closest-performing ETF as possible.

[Frizz B.]

I do like the fact that it will be a 5 second trade instead of the end of the day or next day, should make for bigger possibilities, except for $7 fee everytime. I think you will be able to make that up in the long run, expecially if the markets start losing and you can put a stop to your account if you wish.

[Rolo]

As long as your trades earn you more than the commissions ($14, two trades), you'll be alright. Also, don't forget that each trade triggers a taxable event, so you will have to earn x% more over the buy-and-hold result, where x = your income tax rate. The more money you involve in this, the less of an issue fees and taxes are.

[Frizz B.]

I went to Scottstrade today, looking forward to doing this in the now and not for the future. I will have to wait for the market to take its blunders before I start. I want to be able to jump right into the S and I funds. Going to start with the $500 base and then instead of putting my 14 % into the TSP, will only do 5% and put the 9% extra into the Scottstrade. Looking forward to be able to do (now money), instead of future money.

[Rolo]

heh, wow, I thought I was a "I want it now!"-Me-Generation-Xer.

I do not know if you will get ahead by siphoning from your TSP. You lose the tax advantage andyou will pay more taxes due to daytrading. That is a lot of gain required to break even. Also, there is a 30-day cost-basis rule that I have been meaning to research.

Waiting until you are 59-1/2 is not absolute; you can withdraw early if you follow the rules.

[Frizz B.]

More than anything, this is for my kids college fund, I have no control over the fund when it is in the 529. Not sure if I just wait 4 years and take a draw, but then have to pay it back, which might be better.

[Rolo]

It sounds like you need to get a tax guide. Ernst & Young's is pretty "user friendly".

[Frizz B.]

The one thing I am looking to see, if I can make my trade and it takes 5 seconds for this to happen, instead of waiting for the next day or the day after, might be well worth it, and not worry about taxes, we will have to pay it sooner or later. I want to work for some upfront money.

[Rolo]

Your order will be placed within five seconds; that does not guarantee that someone will agree to your trade within that time. Rarely have I had a market order not execute within a few seconds. I think only once it took almost a minute and volume was outrageously high at that moment. For the most part, they are instantaneous.

[Frizz B.]

That is what I'm looking for. How many times did we want to make the change and had to wait. Sometimes good, sometimes bad. Once I get started I will show the process. Still waiting for the market to crumble then jump in.

[Rolo]

What will you use as a reference to "zero" in place of the F fund? T-bills?

[Frizz B.]

Well, I went to Scottrade and started my account. I tried to find which fund follows the Wilshire 4500 and they said the $dwcp and ^dwcp are not funds I will be able to invest in. Is there another fund that tracks the Wilshire e 4500 throught the american exchange. I did like the fact that I can do short trading in the same fund and as I understand, it will only be one trade. So if my differential goes to 315, as it did last week, I would be able to make my trade and put all my money in short trading. The question I have, would I still have the stocks in the fund that I am in at the time or would all my shares go to short tradiing.

[Frizz B.]

The more investigations I am doing the harder it is to believe I will be able to invest online. Weshouldbe quite pleased that we can do as many trades as we want in the TSP with no fees. What I have learned is that if I traded the S fund to the G fund, this would cost me $14, and when I wanted to go back to the S fund, another $14, a total of $28. The same way for Short selling if I wanted to take all my money out of the S fund and put it in Shorting the S, $14 and the move it back to the S fund, another $14. Not cost effective, especially if you guess wrong.

[tsptalk]

I wrote about this before... I tried my hand at daytrading a few years ago. The problem is not onlythose commissions, you can add slippage (when you get a worse price than you thought you would on a trade), spreads, (the difference between the buy and sell price), and the fact that there are pros out there waiting to take your money, you can see why it would nickel and dime you to death. It is a tough game. Intermediate and longer term have worked out better for me. I still would love to be a daytrader, but I also want to play shortstop for the Mets. :) Neither future looks bright for me.

[Frizz B.]

Yes, I'm starting to understand this. The more I look into it the tougher it looks.

[Rolo]

hehe, Tom

Selling your holdings (long) and selling short are two different, independant things. You specify "Sell" or "Sell Short" when you place your trade. Similarly, you specify "Buy" (long) or "Buy to Cover" (short). You can buy a long position, say, 100 shares of EFA and concurrently sell short 50 shares of EFA as a hedge. You will own 100 shares and will be borrowing 50 shares simultaneously. As far asI know, you will eventually have to "Buy to Cover" those 50 shares; I do not think you can transfer 50 from your long position over to your short position. I would call and ask.

If you only dabble in small amounts of money, fees will kill you. Ifyou are profitably moving several thousand dollars, like10K, then $14 commissions are a drop in the bucket. The question is of your resolve. Trading on paper is entirely different than when your investment capital is on the line.

[Frizz B.]

I was quite dissapointed today, went to Scottrade and try buying EFA on a short sell 30 minuites before closing. Well, I could not, they said there was no shares to be short sold, and since it is an international fund,I would have a hard time buying or doing a short sell on it.I can't purchase any funds through the Wilshire 4500. The 2 funds that I am tracking, I can't purchase.

Does anyone know of any trading companies that Iwould be able to use to purchase these2 funds on etrading.

[tsptalk]

Frizz B. wrote:
I was quite dissapointed today, went to Scottrade and try buying EFA on a short sell 30 minuites before closing. Well, I could not, they said there was no shares to be short sold, and since it is an international fund,I would have a hard time buying or doing a short sell on it.I can't purchase any funds through the Wilshire 4500. The 2 funds that I am tracking, I can't purchase.

Does anyone know of any trading companies that Iwould be able to use to purchase these2 funds on etrading.


I don't know if this helps, buthere's some info on other iShares options...

http://www.ishares.com/material_download.jhtml?source=site&relativePath=/repository/material/downloads/basics_of_ishares.pdf

You may not be able to trade the Wilshire 4500 but you can do S&P or Russell small and mid caps. They should act similarly.

[Frizz B.]

I was given a fund of the Nasdaq 100, (QQQ), this was by Scottrade and this is a fund that they deal with. So I did some calculations with the stock prices that were given in their history and I have my differential theory for this fund, I will call it the Q fund. The differential is from High of 255 to the Low of 205. So far the high differential has been a high of 275 and the low has been 184 for the months of Feb through today. The stragedy that I hope will pay for itself is the opportunity to short sell. Instead of moving into the G fund and waiting for the C, S, and I funds to lose share prices, I will be able to buy short and make the gains when the market falls. With being able to buy short, this will more than pay the $14 trade costs.

The Q differential was at 275 a week ago, and now it is at 250, this shows me a new kick in our funds, that the market is on its way down, it will be interesting to see if the Q fund differential helps me predict the market a little more. The highs and lows of this Q fund, has coincided with the S and I funds since the begginning of February, within a week or so.

I also like the ability to be able to move my funds quickly, we shall see if Scottrade will do this fund for me like I want. If the market is rising and goes past my differential number, I don't have to do a transaction before the 12 noon deadline. I can let it ride until I want to make the move, (Should be interesting)

[Rolo]

Can you post/send me your spreadsheet. I have some Scottrade money to play with.

[Frizz B.]

When I get some time, right now I traded this morning at 36.69, the differential was at 260 and this morning at open it was at 250. I am selling short. Now I am looking for the Q differential to get under 220 and then I will use my gut feeling. Later when I get some time, I will explain how you can use any of the equities and make a differential report for each equity. This is going to be fun. I like the possibility of short selling. Rolo, if you do trust me the differential is at 257 and my high for the q fund was at 255. So if you want to go ahead and short sell, do it soon for the qqq

[Rolo]

Differential with respect to what?

QQQ :{.20 so far!

[Frizz B.]

I used Dec 31 as my starting pt. I then took the price of the Q fund 36.46 and divided it by the share price of the S fund 12.48 which equals 2.9215. You can now use this 2.9215 and multiply it by each days fund price to get a share price in the range of the C, S, and I funds. To get the Q fund differential take the share price of the Q fund you just created and multiply it by 100 and minus the F fund multiplied by 100. Now you have the Q fund differential. Take the highs in each market turn and add them together and divide by how many numbers you have used for your average of highs and do the same for the lows. Now get your comfort level when the high and low trading point should be. I am using 250 - 255 for the high and 205 to 210 for the low. The nice part, this morning started at 250, and started down, shortly after the Q fund started up, went past the 250 mark to 262. then it started to go down and I made my trade at 260, which was 36.69. Ended up at 36.43, so far so good. I also found out that since I had $2000 in my account and I bought 54 shares for the short sell, I could have bought 108 shares, since it is short selling. Whatever you have in your $$ account, you can double it in the short selling. If my differential theory keeps on working, and it shows me when to get out of stocks for the downside, this short selling is to KOOOOOOL :dude:

[tsptalk]

Frizz B. wrote:
If my differential theory keeps on working, and it shows me when to get out of stocks for the downside, this short selling is to KOOOOOOL :dude:
And dangerous. Be careful Frizz. Buying, selling and short selling with margincan be hazardous to your savings. :shock: I've been there many times.

It can really bite you when you are wrong. When you get out into cash and miss a rally it hurts bad enough (emotionally). If you have all your money short, plus full margin, you can get creamed. Then you jump on the long side and the market goes down, you lose again, double (assuming you are using margin on both ends).

My advice is to stick close to your system and keep the emotion out of it, because there will be a lot of emotion.

[Frizz B.]

Don't know if I am missing something. If I am in the S fund and the market takes a tumble, I am losing money. This would also be the same if I am selling short and the market gains.To me it is all the same, just working in 2 directions. Tom, I understand the emotion part. What I'm trying to do is, when it hits a differential pt and I short sell, like I am right now, I will sell completely at a low differential pt. When and if this happens, (hopefully) I will not get back into the market until the differential has gone past either the high or low differential pt. I have no problem sitting on the sidelines waiting for this to happen. Emotions gone, #'s speak. The #'s shows a constant under 200 Q differerential and an over 260 Q differential. I am playing a close to 250 - 210 then I watch the ticker, like I did this morning and when I felt it had gone high enough, 262, I made my trade. Took me 2 minuites, I could not do it online so I had to call Scottrade and they made the purchase for me, still $7. The Q differential at that time was 260 and at the end of the day it is now at 251.

I do want to thank you Tom for your concern, it does help to get that kind of feedback to keep yourself in prospective. :dude:

[tsptalk]

Frizz B. wrote:
I do want to thank you Tom for your concern, it does help to get that kind of feedback to keep yourself in prospective. :dude:

No problemI made a lot of mistakes in my day trading days. If I can get you to avoid some of thembefore you get there,all the better. I may take another shot one day.

Good luck!! :^
Tom

[Rolo]

Yes, Frizz, you could have purchased 108 shares because you have a margin account. Tom is right, if something were to blow up, you can be in a bind. Have cash ready in case that happens. Read for comprehension your margin agreement. hehe, I do like how you are just diving right in!

OK, so you just divided QQQ's price by 2.9215 to plot it in the differential chart.



((QQQ/2.9215)*100) - (F*100) = Q-F differential

And backtesting it to January proved lucrative, eh?

I am fully margined atm, but may make some changes soon. heh, In fact, I have a $212 maintenance call, but I think that is because they have a fund listed as cash rather than margin and I somehow have $4K+ in buying power. (How can I buy more stuff, yet have a maintenance call?)

[Frizz B.]

Dec 31st, 2003 is where I started my differential theory, so I decided to start there with the Q account. When I did my division I came to that #, but I noticed that I made the # an even 2.93,so ((QQQ/2.93)*100) - (F*100) = Q-F differential. By the way, you can use any # to multiply the QQQ by. You just need to start with a starting point. But if you use the 2.93, your #'s will coincide with mine.

[line]
hehe, I do like how you are just diving right in!

[line]
I am a person that has a sceem for everything thatI try. When I go to vegas, I play the craps, and work a system that I have devised.I have been planning for a while, just had to find a stock and work the #'s. Here is my plan:when I purchase short, the differential # has to be at almost the highest it has ever been, when this happens I will purchase like I did today, with straight up front cash, and then if the market rises 5 pts to or past the high diff pts, then I will use the margin, and hopefully the market will not be in a full blown bull. I do feel when playing short, you look for the highest price of the fund and purchase the fund, close to or there of.

I have pulled a list of funds that trade on the AMEX, and I am going to do a differential on each one of them, might take me awhile, but if you know me, this is my fun time and I will do it. Then I will have up to 20, hopefully, funds to chose from at any given time. My feelings are, at any one time, one of the funds should be at or close to their highest or lowest level of differential. It will be my task, should I accept it, to pick that fund

[tsptalk]

Frizz B. wrote:
I am a person that has a sceem for everything thatI try. When I go to vegas, I play the craps, and work a system that I have devised.
I think we were separated at birth :). If you do gamble, you will eventually realize that poker is the only way to go. But in the past, I have done it all. Craps systems, blackjack systems and card counting (I was thrown out of The Orleans in Vegas for counting a few years ago while on a poker tournament trip), roulette, bacarat, horse racing and the biggest gamble of them all, the stock market. :D

The only things I have made money on consistantlyare poker and fund investing (Not daytrading. That was a losing proposition for me after years of trying). So now I invest in funds and play poker almost exclusively. A little card counting once in a while.

[Frizz B.]

My strangest system was playing the dog track, I noticed that if you took out the top 2 dogs and the bottom 3 dogs at the 1 min to place last bet and then you boxed the 3,4,5,6 on races 3 thru 8, for some reason one of those bets worked almost every day for 3 weeks. I always looked in the paper for the results and it was a commonoccurance. Won over$4000 dollars in a 3 wk period. Then one time I asked for the 1,2,3,4, (this was not the sequence, but you get the picture) and the same gentleman that I had been using for the 3weeks gave me a ticket for the 1 with the 2,3,4.So the 1 had to win with either the 2,3 or 4. I gave him $25 and he gave me back a $1bill. Didn't think anything to look at the ticket. Well the dogs came in 2,1,4 and paid over $400. Went to pick up my money and I was told I did not have a winning ticket, which I did not. You can just imagine how (########) upset I was. So for 3 weeks of winning, in that one moment, everthing changed. I played for another week and did not even come close.

Just one of my many systems, YES and most of them don't work especially in Vegas. The best luck I do have is in the Crap table. On the poker, I like playing with friends but if I go to Vegas, it is to slow for me. My son, who got out of the service in November, deals Texas Holdem in La Salle Washington. He took a class for $1500 and when he graduated, he took an audition for a job and got hired. He is in heaven. Minium wage plus tips, averages around $20 and hour, this is what he told me, I do not have confirmation on that. He deals the $3-$6. Just imagine how much the dealers who deal the $10 - $20 tables or higher, make.

[tsptalk]

Good story :)

Frizz B. wrote:

He deals the $3-$6. Just imagine how much the dealers who deal the $10 - $20 tables or higher, make.
My experience has been that the lower limits, usually beginners and tourists, tip better than the higher limit players. I was playing $15-30 while on vacation and some of those "pros" still ask the dealer to break a $1 chip into .50 cent pieces for tips. I guess if you make your living at the tables, you have to cut your costs where you can. It's a tough way to make a living, but can you imagine the freedom of a job like that?

[Frizz B.]

I have now 4 funds that I have worked up a differential system for. The Powershares Dynamic Market (PWC), Powershares Dynamic OTC (PWO), MidCap SPDRs (MDY), and the NASDAQ 100 Trust Shares (QQQ). 3 out the 4 funds are showing that the market is on its way down. The MDY is the closest to the S fund for staying close to the share price with the S fund. The PWC is the closest so far to the I fund. I am going to try to track 10 fund with my differential system, so I still have some work to do. Right now my differential #’s are saying to sell short on the PWC (36.40), the PWO (39.23), and the QQQ (36.46), and to stay away from the MDY. I am selling short right now on the QQQ and bought at 36.69.

[Frizz B.]

The Powershares Dynamic Market (PWC), Powershares Dynamic OTC (PWO), MidCap SPDRs (MDY), and the NASDAQ 100 Trust Shares (QQQ

I am going to back track on my last entry, I only went back to the end of Feb. since that is when the new trend started for the 3 fundsI said was in the high differential, and to go short on them. I put each fund up against the S fund and noticed that in Jan. when I started they all grew about the same through February. March thru June, the S fund went back and forth with the same differential along with the MDY fund. The PWC, PWO, and the QQQ all went down in the differential and stayed there. The high differential for those 3 funds was between 300 and 315. For the last 4 months they are running between 250 - 270 for the high, and 130 to 150 for the lows. So although I made my move to short sell in the QQQ and thought it was a good move at the time, I will be buying the shares back as soon as I see a rise in the stocks, whether it is right at opening bell, if the stocks are showing a profit, or in a couple of days if the current pattern continues and the stock is on the down side. Since I have been doing quite wellwith the S fund,my main fund to work with right now will be the MDY. It has stayed with a 10 pt spread with the S fund from January. I should keep playing what I am comfortable with. I will keep track of these funds and see how they do.But for right now, it scares me to short sell them.

[Rolo]

A little deal I ran into today, somewhat related to this topic.

If you buy a fund in cash on Scottrade, it does not automatically move to margin. I've had a fund stuck in cash for 11 months. I called them to see wtf; you just have to ask them to move it. This gives you more buying power. I did it to get rid of that "MAINTENANCE CALL DUE" message. :D

I don't have the chutzpah to sell market index funds short with such 50/50 uncertainty, but I am still kicking myself for not selling RHAT short. I will certainly add that to my sell rules. If I am dumping a winning stock because it will deflate, I should therefore sell short at least half of what I had.

(I do the "should have" thing to make the lessons stick and to not repeat mistakes--my personal "negative reinforcement" :shock::).)

[tsptalk]

Rolo wrote:
I don't have the chutzpah to sell market index funds short with such 50/50 uncertainty...
What's the old axiom, "You don't short a dull market."?

[Frizz B.]

The 3 funds that I had mentioned previously and suggested it was a good time to short sell. the PWC 36.4 to 36.05 down 1%, PWO 39.23 to 38.85 down 1%, AND THE QQQ 36.44 to 36.15 down .9%. I was in the short sell for the QQQ, started with 54 shares at 36.69 = $1981, now 54 shares at 36.15 = $1952. $1981-$1952=$29 and you take away the $14 that I will eventually end up spending when I buy back the stock in the future. For now a profit of $15. See what happens today, whether I sell or hold. Again the differential pattern for the PWC, PWO, and the QQQ are for the last four months. I said yesterday they scared me because since I have been tracking our TSP funds the pattern started in January. Only the MDY has followed the differential pattern since January. I will rethink yesterdays decision about the high prices in Jan and Feb. and work with the differential theory with these 3 funds for the last 4 months.

I have 2 more funds, the (VUG) Vanguard Growth Vipers, this fund stays close to the S fund. The highes differential was at 315, where the S fund was at 341, but the pattern has been since January.

The second fund is the (RSP) the Rydex S&P Equal Weight. This fund, like the VUG, is close to the vest with the S fund, its highest differential has been 319. The VUG differential is at 298 and the RSP is at 300, while the S differential is at 290.

I am having a blast doing this so far, please don't burst my bubble. :dude:by the way this smiley face is my signature sign. This is almost how I got my nickname Frizz B. My hair actually looked worse that the :dude:hair on this smiley face, a lot longer with the 2 year growth of beard to go with it. THOSE WERE THE DAYS.

[Rolo]

You probably want the most volatile index ETF, one that has larger and more frequentswings. QQQ probably has the highest beta, no?

[Frizz B.]

Rolo asked: You probably want the most volatile index ETF, one that has larger and more frequentswings. QQQ probably has the highest beta, no?


[line]

Interesting enough, since mid of February all the differential move along with each other. The one I will be playing will be the fund that is the lowest percentage wise or the highest percentage wise to the high and low differential to each fund. I will watch each fund and when the timing is right, I will chose the fund that has the biggest percentage from the high and low to that fund. :dude:

[Rolo]

Er. hm. heh. Wot did he just say?

I think you said that you will trade the fund that had the biggest % move..?

[Frizz B.]

Something like that

[Rolo]

You are liking today, eh Frizz? I'll jump in the überFRO when I return from vacation.

[Frizz B.]

Ok, I have made 4 transactions through Scottrade for$28. I bought short twice, and 2 times buy to cover. Here is my question.

When I bought short the priceof a share was at 34.54 and going up at the time. When I purchased the share they quoted market 34.55 and purchase price at 34.52. When Ibought to cover the price was at34.20 and purchase price was 34.26. Who is making the extra 4 to 5 cents for each share?

I made money on the sells, but with the $28 for cost, I ended up down $12. I also found out that, on the 3rd day for my short sell on the second transaction, I received a notice that I would have to purcase theshort or they would do it for me by 10 am. The reasoning was that they had to borrow the short from another company. I did call that morning and asked if I still had to buy to cover and they checked around and I was covered soIcould wait tillI wanted the buy to cover. Interesting things happen, learn while you go. :dude:

[Rolo]

Most of my trades are a few cents to my disadvantage than the current time & sales rates; I do not know why. I do not think that is the spread (difference between bid & ask) since I watch every transaction in the T&S window before I place my order and mine rarely follow suit. My theory is that we sacrifice price for expediency.

Having learned that early, I do not rely on a few-cent difference in my trades. Generally, I trade for a quick 5%-20% profit within a few weeks or a large run-up over a couple of months. Like Tom mentioned, six months is long-term. :D

Interesting about the forced buy-to-cover; I wondered if they did that since I have never found anything specific to how long you can borrow shares. Borrowed shares, borrowed time.

[tsptalk]

Frizz B. wrote:
When I bought short the priceof a share was at 34.54 and going up at the time. When I purchased the share they quoted market 34.55 and purchase price at 34.52. When Ibought to cover the price was at34.20 and purchase price was 34.26. Who is making the extra 4 to 5 cents for each share?

That is what is called slippage. I have written about it here a couple of time (use the search feature up top if you are interested). It is one of the main reasons why it is difficult to day trade profitably and why the market makers are rich.

By the way, you "sell short" and "buy to cover". :)

[Frizz B.]

Here are my predictions for Etrading, following the differential theory.

QQQ shareprice at35.07 as of yesterdays close the differentialis at 192, 14.33% below my low of 220 and it looks like it is at 35.425 in after hour trading, the differentialis at 205, 7.54% below my low of 220, and VUG share price is at 47.64 and the diff.is at 234, 11.65% below my low of 261.

Good luck :dude:

[Rolo]

So you are saying buy those two?