Day Trading Question

[CaptainCrunch]

Greetings,

I have a question about an approach that I saw online. A day trader, who runs one of these "rooms" normally purchases between 2500 and 4000 shares of a stock. If the stock goes up .40 or .60 cents, he makes between $1600 and $2400. However, in order to do this, he needs to put up about $500k . He uses a margin account and claims that he is not risking too much money, because he has stops. Is this a valid approach and has anyone done this?

 

[rad14733]

@CaptainCrunch I don't trade using margin, I'm a firm believer in cash-only, but whether I used margin or not I'd say $1600 - $2400 profit on a 500K investment isn't anything I'd be interested in... That's a mere ~.5% profit, or less... Not worth my time and effort to be quite honest... I'd say there is more risk than reward in the grand scheme of things... Now, if someone had millions and just wanted to trade for entertainment that would be a different story...

 

[codydog]

@CaptainCrunch - we dont really know from your comment exactly what he is doing, but you could probably achieve the same results using options with less downside risk, or cash, eg, a $10 option can only go to 0, whereas a $100 stock can drop >$10 in a session.

you can fool around with the numbers, but in current decreased liquidity, 4,000 share stop can cascade the price quickly beyond original stop level

As always, I'd ask for their audited 1040 before plunking down my cash.

 

[RazzBlade]

Greetings,

I have a question about an approach that I saw online. A day trader, who runs one of these "rooms" normally purchases between 2500 and 4000 shares of a stock. If the stock goes up .40 or .60 cents, he makes between $1600 and $2400. However, in order to do this, he needs to put up about $500k . He uses a margin account and claims that he is not risking too much money, because he has stops. Is this a valid approach and has anyone done this?

"Is this a valid approach and has anyone done this?"

Yes, its done every day in the "Day Trading" arena... But your original post does not encapsulate it from a neutral perspective.

If one assumes that an individual is putting up 500k to make 1600 bucks, that's not a great position. And not something to follow up on or try to mimic.

BUT,

Its is (almost) quite ordinary to buy 2400 shares of a 2 dollar stock for 4800 bucks and see that share price increase .40 to 60 cents. (assuming your a seasoned trader and know what to look for)...

So its particularly important to know exactly how much hes putting in, on what, and at what price. Guessing at best only leads to a skewed and incorrect perspective.

Ps. Market analyst and long term investors are not folks you want day trading advice from. They just don't play the market in the same way. And frankly often don't have the skill set to day trade successfully. Its too fast for em. Their skill set typically includes areas (fundamentals) that are often irrelevant to day trading.

 

[XeoNoX]

@CaptainCrunch ... no, it is not something that would be recommended to attempt, his total allocation is over 100% of his net portfolio and all in one asset. Not professional at all. Not to mention hes using margin all one 1 trade which is not the wisest thing to do.