Anyone here an active trader?


#1

Hands off ETF investing seems to be the standard strategy for most FIRE folks. I’m curious if there is anyone out there who is either primarily or partially actively trading to build wealth?

I’m thinking of having some play money aside for swing traded, and would love to read any articles folks have done about active trading.


#2

I don’t have any articles because I don’t have a money blog, but I have a little account that I do active stock picking and options trading. I STRONGLY believe that long term index funds are the way to build wealth and he BEST way to invest. However, I’m a thrill seeker, am impatient, and a risk taker, so I wanted something a little more exciting to be involved in every day. I trade options probably About 30 minutes throughout the day, and it’s fun to watch the stocks throughout the day and follow the news. I’m not looking to get rich on it, but if I can somewhat match market returns, then it was a fun way to do that. I love actively (vs. passively) investing. It’s more like a hobby than anything else. And I’ve already decided that any money I make over a certain threshold gets put toward our mortgage. So it’s a win win all around. I trade through a new brokerage called TastyWorks. They specialize in options trading. $1 contracts and no closing costs. $5 stock purchase commissions. Lowest prices EVER!


#3

I am not allowed to actively trade with the compliance rules for my job, and wouldn’t be likely to do it anyway so I don’t have any articles on it. My concise opinion is you just aren’t going to have the information access of the big boys and securities that have enough beta to make day trading interesting can easily rip your face off. People I know who actively trade successfully started in trading at a major broker dealer or were previously prop traders and they have maintained their contacts and they maintain deep knowledge of the companies they trade in. Reading transcripts, filings, maintaining models, etc

You could do what it sounds like @FinAZ is doing, and have a small trading account for play, but long term index funds are really the way to go to build wealth.


#4

@FIREvLondon is worth a look. There are some good Monevator posts by “The Investor” about his active trading adventures (amongst other things) too.


#5

Thanks! I’ll have to give those a check.

I’m not that exciting, a decent chunk of it will probably be etf’s :stuck_out_tongue:.

Really, I just have an unhealthy love for dividends :slight_smile:


#6

I purchase individual dividend stocks. Two reasons. Main reason is ethics. I never want to make money from a good or service I disagree in or wouldn’t use, even (especially) hidden from me in an index fund. Second, the idea that the dividends replace some of your income and you never have to touch the principal resonates. Seems easy and once set up, requires no effort. This isn’t meant as a criticism of the 4% withdraw rule crowd from index funds which is really popular here - it’s just that despite reading about it many times I am not comfortable with the mechanics of it.


#7

Well mostly no effort. Still got to monitor current holdings and potential new ones :slight_smile:


#8

I do the same thing as FinAz, but only with stocks; not options. I swing trade all the time with several volatile stocks while holding core positions. The trading increases total gains a modest amount–maybe 3%–but I do it for the fun and excitement. I’ve taken some big risks in the market three times in the past 20 years, and bet correctly each time, but I wouldn’t recommend that others do this. One time I risked so much that I couldn’t sleep for three nights, and that’s totally crazy! Looking back, I now realize that I should have learned about options so that I could have hedged the bets and limited the potential downside.


#9

@sethdrebitko I made a killer return trading covered call options / swing trades using a small portion of my portfolio. Here’s how: http://optimizeyourretirement.com/trading-options/


#10

Great article and info. Thanks.


#11

Hey @sethdrebitko
I suggest you consider heading down to the casino,
It will be faster (win or loose) and more fun than sitting in front of a computer screen all day + they may even comp you some free drinks, food and acc…
Living the Dream!
Peter


#12

I tried in my younger years before I knew any better. Thankfully I didn’t have much money then. I would do well for a while and then make a bad trade and lose everything. I tried all the technical stuff I could find but eventually found it wasn’t worth the time.
I guess if you really enjoy it, it’s no worse than dropping some entertainment money at the casino but going into it thinking you are going to fund your retirement and or lifestyle by trading is a fools errand. I wouldn’t put more than I could live with losing into it because the odds of loss are so great.


#13

Hey @sethdrebitko

Don´t go to the Casino :slight_smile: I still think you should explore and take the next step in investing, though not necessarily “trading”.

I consider myself an active investor but not a trader. I read news and follow markets daily to be up to date and I re-balance quarterly. My portfolio consist of 75% funds and 25% stocks.

If we divide people into categories as:

  1. Non invested - keeps cash in the bank
  2. Buy and hold - invests in an index fund without rebalancing
  3. Active buy - Invests in different funds/stocks to increase diversification
  4. Active investor - Invests in different funds/stocks and rebalances based on a preset investment strategy
  5. Swing trader - Buys sells stocks or other instruments to hold 1-5 days
  6. Day trader - Buys sells stocks to keep for less than 1 day
  7. Options / Derivatives trader - Uses other instruments to hedge positions, usually as a day or swing trading strategy
  8. Forex / Commodities trader - Instead of trading stocks, trading Currency pairs or commodities such as metals, gold, silver

The reality is that many are in the #1-2 category and want to make a jump to #5-8. I have tried it and lost money, thanks for sharing as well @HighIncomeParent :slight_smile:

Two important things to decide for any investment strategy is:

  • Your rebalancing frequency
  • Your tolerance for risk

These things become more important if you increase them since our brains tends to lean to irrational decisions when we have the most need to rely on a preset strategy, many will argue that being disciplined is key factor to succeed in trading.

Anyway, I wouldn´t encourage you to try anything called swing trading, though you could always take a next step where you slightly increase your tolerance for risk and/or frequency.

Personally I have decided to develop my increasing my tolerance for risk but not the frequency. The decision to keep my frequency is that I don´t believe I have an egde which will make me increase the returns at a lower risk by going from quarterly to monthly re-balancing.

I have decided to increase my tolerance for risk by moving some parts of my portfolio from funds to stocks. I will look at what the funds invest in and buy the stocks instead, this way I won´t pay the fee to the fund, I get to do some adjustments of my own and at the same time learn and have more fun with my investments. I am also looking at some figures though relatively fundamental and basic metrics such as

  • The P/E - How is the company valued in relation to their return, compare with other in the same industry
  • The development of earnings, compare with other in the same industry
  • The development of revenue, compare with other in the same industry
  • Is the company doing something I understand and believe has a good potential
  • Based on what I know about the current financial climate/macro economics, what is the general outlook for the company’s industry

With this strategy you could do a test for yourself to see if you can beat a selected funds returns with your own strategy. Mostly for fun and don´t take out your victory too early :slight_smile: The real tests are when markets change.

I don´t know what level you are on and this may be basic info to you. I just wanted to share to tell you how I found encouragement to develop my investment skills, though without taking a major leap. Going from funds to stocks is a whole new area and there is so much to learn, it´s relatively easy to pick up small parts over time and you don´t get as overwhelmed as with the technical stuff. I may increase to monthly investments some time in the future but right now the change of of my portfolio feels like a good path.


#14

Great, It is a great post. If you want to be a successful trader or investor then you always need a strategy and plan and you can trade or invest according to it.

http://click.forextraders.blog/ebook


#15

To the original poster, you might want to check out the blog Mr.TakoEscapes. He has a decent amount of his net worth in dividend stocks and has had success. His blog is great


#16

Some good books would be Margin of Safety (get the pdf, real version is like $1k due to being out of print), Ray Dalio’s Economic machine, Hedge Fund Wizards set by Jack Schrager, Taleb’s 3-part series on the Black Swan, Fooled by Randomness, Antifragile. Skin in the Game (out later this month), the undoing project for market psychology.

Though Taleb is a bit too arrogant in my opinion, and his words border on academic, his crux of finding assymetrical payouts with options is one of my favorite plays. Here’s a link on his favorite books: https://medium.com/the-mission/61-books-nassim-taleb-recommends-you-read-in-his-own-words-fc2e17a7f3c1

Also look at the Kelly Criteron for poker.