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Cash and burn
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January 13, 2002: 7:30 a.m. ET
Day trading angst. From riches to rags in one trading day.
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NEW YORK (CNN/Money) - Fifteen minutes since the opening bell, five trades, and I've made $1,800.
"I AM A TRADING GOD!" I exult to the CNN/Money newsroom at large.
Looking back now, that's the point I probably should have turned off my computer.
It wasn't real money I was playing with, of course. TradeTek wanted me to try out their direct-access trading software for a day. They set me up with a "test" version of their software (one that would let me trade real time with the market without doing real damage) and a $250,000 line of credit. Their hope, of course, was that I'd be enthralled with their product, write glowing things about it, and get them some more business from hedge funds, rich investors, brokerages and the like.
But I was more interested in flirting with the demon.
The term "day trading" conjures up images of self-destructive excess in the market. It is frowned upon by the business-suited, institutional establishment. Its sudden popularity in the late 1990s and the implosion of the bull market, ended up wrecking finances, marriages and lives. Its popularity died. Day trading is now down to a hard core of about 5,000 diehards.
But despite the bad rep, there's some allure. If you're savvy enough, you could get rich! Well, that's the daydream at least.
"Oh, Allen," disappointedly sighed Myron Kandel, the CNNfn bastion of financial sensibility, when I told him of my upcoming foray. "That's not good."
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TradeTek's platform. Easy to learn. Very fast. That speed can translate into portfolio savings if used by a savvy trader (i.e. not me). | |
My mother had a similar tone when she told me not to skateboard down Chicken Heart Hill. I didn't care. It was exciting.
Of course, as a journalist I could argue that you can't really look down from the Ivory Tower and criticize something if you haven't really gotten to know it face to face or, in this case, face to margin call. Yeah, yeah ... But there is also the chance to see if I could do what I thought should be simple, yet never had the money-where-your-mouth-is guts to try it: Beat the market.
At 10:00 a.m., that looks incredibly easy. My picks, carefully culled from that morning's news and comments from guests on CNN Money Morning and Before Hours, are working like a charm. I am up $1,500. What am I playing? Simple enough, when you are a TRADING GOD.
Merrill Lynch's layoff news: the market would love that. I'm in. Gateway stock? Pounded too much the day before ... bound to come back a little. Ford? Some info about its layoff plan will probably dribble out some more from the auto show and send the stock up. Of course, the Nasdaq is going to have a good day, according to the futures. Time to lock in the QQQs and some Nasdaq majors.
Of course, Sasha Salama's Stock of Gain - the one she highlights in our newsletter - was pumped up in pre-trade. So I shorted it, figuring it would retrench as folks took profits.
And good old GE. One of our Web site's market reporters whispered to me that the stock has a habit of drifting up in the days leading up to its earnings release. I was going to ride that one all day.
10:30 a.m. (up $2,300). I covered my short on Sasha's pick. A quick $150. Sold a couple of my Nasdaq bets too. Lock 'em in, baby. It's like picking ripe fruit, hanging from tree branches right in front of you.
Hmmm, investors had pumped up AOL. That much faith in a company that would employ me? Ha! Short it.
Maybe I should change my stance on letting Social Security funds into the market, because this is SO EASY.
11:30 a.m. (up $1,400). What the hell is wrong with NTAP (First bad sign - calling companies by their letters, not their name).It was supposed to be one of my Nasdaq winners. Never mind. I'll cut it loose, and pick up some software companies our line producer is touting.
Uh-oh. What's going on with Fuel Cell. It had good news today. Why is everyone pulling out?. Damn! It's that "sell on the news" thing. I decide to double up on it - buy more shares in hopes of diluting the overall cost when the stock bounces back. "Ah, that might not be a good idea," says Jed, the seasoned day trader and technical person that TradeTek has babysitting me. Ha! I do it anyway.
Cover the AOL short. Earn $240. God I love my company.
12:30 p.m. (up $2,200). I think we're at a peak. Probably one of several for the day, but I'll lock in some anyway.
Fuel Cell came back a little. I dump. Overall, it's a wash to my portfolio. My dollar-cost averaging strategy worked. More proof of my divine powers.
A staff writer pulls me over. I've been hitting up all the writers for news of the day. Hey, use what you got, right? And I have the staff of the financial news site rated Number One by Barron's.
"Allen, you heard ImClone executives are meeting with analysts today? It might get bad." I check the stock. Down about a buck and a half. Already pounded. Too late to make a play.
So I'll short AOL again. (Twenty minutes later I cover. $120 gain. Always short your employer).
1:30 p.m. (up $1,700). Hmm, the market appears to be approaching a peak again. Some of my Nasdaq horses, ones that had been in the red just a half hour before, are showing some life. But I think Nasdaq will go higher. It's a tech day, I can feel it. I AM A GOD, after all.
My mouse is on the sell button. I want just a little more, just $10 more on two or three of my holdings. I wait.
1:45 p.m. (up $1,000). Damn. That WAS the peak, and I missed it. The $30 extra dollars I wanted is beginning to cost me hundreds. Now all my tech horses are beginning to look sour. Bail now or wait. The Nasdaq has to peak again! I'm down $500 on Nokia. I mention it, rather tersely, to the investing writer who recommended it to me. "Learning to trade means learning to take your losses like a man," he says. Hmmm, wait till he needs a reference.
2:30 p.m. (up $800). Where are my thousands???? I was up $2,300 dammit! Where'd it go. I scavenge the Most Active list for beat up stocks that are likely to bounce back. Ah, Comcast. I buy and flip. A $90 gain. I'M STILL A GOD. Based on this success, I keep my Nasdaq-geared holdings. It WILL recover.
GE will recover too. It's been up most of the day. This downturn is merely a breather. I have confidence in this stock. Honest. It's reporting earnings next week.
3:30 p.m (down $1,000). "Hey Allen, did you short ImClone?"
I check the stock. Down three bucks. Damn! Damn! Damn! "Geez, that would've been $2,500 right there," comments the ever-helpful Jed. DAMN!!!
Okay, it's obvious my late afternoon Nasdaq peak is not coming. But I can play this out, just like I played out Fuel Cell.
I take short positions on some high-profile Nasdaq stocks. This should staunch the bleeding as my QQQs and tech bets continue to fall.
I short AOL. Three times a charm.
4:00 (down $2,930). I've sold back all my positions. The shorts I picked to staunch the bleeding happen to be the only ones that produced a little pop just before the bell. GE stayed down. AOL got stronger (Levin's revenge).
More than $5,000 gone. Poof. Finis.
If you add in probable commission charges for 86 trades (they would ordinarily vary according to what broker I was using for record keeping and what exchange I used), I lost a grand total of $3,750.
I fell for every day trader excess. Sure, I might have been a little more cautious if it had been real money. But toward the end there, I was trading on hubris and hope, not fundamentals.
Just what Myron warns people about. I banged myself up bad on Chicken Heart Hill too.
"How'd ya do, Allen?" asks a writer as I make my way to the elevator.
"I'm a trading clod." 
Allen Wastler is managing editor of CNN/Money.
Click here to send mail to Allen Wastler
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