Trading Gains Allure
Ninfa Fabila, a 52-year-old nurse from Los Angeles, watched her 401(k) retirement savings account lose half its value before she pulled the money out of the stock market at the end of last year.
Now, she’s looking for a way to boost her retirement nest egg without relying on buy-and-hold investing in shares. Instead, Fabila wants to learn how to trade the market, she said.
“Right now I would not risk my money buying and holding stocks,” Fabila said. “It’s the traders who are doing well. The sellers are making a lot of profit by ‘shorting’ stocks,” she said, referring to a strategy that profits when stocks go down.
Fabila was one of several thousand attendees at the fourth annual International Online Trading Expo at the Anaheim Convention Center over the weekend, where vendors touted systems and strategies aimed largely at people who are interested in making short-term profits in the market--and in avoiding the heavy losses that can be an inevitable element of buy-and-hold investing.
The grueling bear market of the last 29 months has left more investors fed up with the advice they heard consistently in the 1990s--to just stay put in the market for the long term.
At the same time, predictions by some market pros that stocks could be stuck in a trading range--rallying periodically, then falling back, and making little net progress over a period of years--has burnished the idea that active trading may be a smarter strategy.
Of course, it’s easier said than done to master the art of buying low and selling high. Many financial advisors continue to warn that small investors who try to trade the market may find it’s just as costly as buy-and-hold investing has been recently, or more so. Timing decisions, transaction costs and tax considerations are among the many hurdles traders face.
Still, some attendees at the Anaheim show said disillusionment with professional financial advisors has inspired them to try on their own to learn how to to make money in up markets or in down markets.
“All my experiences with brokers have been bad,” said Mark Brown, a 37-year-old lock designer from San Diego. “That’s what has pushed me to get educated.”
Said Marvin Fineman, 66, a retired dentist from Laguna Beach: “I’ve searched all over the globe for a money manager to handle my portfolio, only to find that one was worse than the other. When the markets are dangerous you should be out [of stocks], but the professional mutual fund managers have been in it all the way down.”
Indeed, many attendees said they were looking for more than strategy ideas for picking stocks to ride higher. Many also were interested in how to profit when stocks drop, such as by “short selling” (selling borrowed shares) and by using “put” option contracts, for example.
Conference organizer Tim Bourquin said attendance has held steady at the four-day event, which he said drew 3,700 this year, because “people are looking at their returns and wondering if there is a better way. Trading might make sense, at least with a small portion of your money.”
But the show’s emphasis has changed, Bourquin said. When he and his partner launched the event in 1999, near the height of the bull market, it was known as the International Day Trading Expo.
“ ‘Day trading’ has never been able to get away from the stigma of the get-rich-quick idea, even though the notion that you could take $10,000 and end up living on an island was never really true,” Bourquin said.
Many amateur traders today say they are looking for strategies to play market or individual stock moves lasting at least several days, not the minute-by-minute moves that day traders try to ride.
One popular strategy now is “swing trading,” in which stocks are held for at least several days once they start to move higher. That appeals to investors who don’t have time to watch hour-by-hour price moves. “As a nurse it’s hard for me to be in front of a computer all day,” Fabila said.
The trick of trading, naturally, is to know when to get into an investment, and when to get out. That’s why many investors look for some kind of disciplined system that can help them take the emotion out of trading decisions.
Terrence Brown, a 47-year-old respiratory therapist from San Bernardino, said he swing-trades stocks and index funds based on his reading of price and volume chart patterns known by names such as “Bollinger bands,” “cup and handle” formations and “head and shoulders” formations.
Swing traders have become so common that one exhibitor joked, “A swing trader is a guy who gets it wrong and is waiting for the market to swing back in the other direction.”
Experienced traders say the volatile market of recent years has taught them many lessons.
Elton Barton of Sun City, who was promoting his Turning Points Advisory Service, said he has been making smaller and less frequent trades because of the market’s swings, to better control the risks.
Terrence Brown, who described himself as a “semi-professional” trader, said he has learned to limit his downside risk by using “stops,” or orders to sell automatically if a stock dips to a certain price.
Wild market swings also have reinforced an investing lesson when trades go well, Brown said: “Protect your profits and don’t get greedy.”
Stuart Townsend of Chicago-based Townsend Analytics Ltd., an exhibitor promoting its RealTick research and trading platform, said simple “momentum” investing--buying what’s hot at the moment--became a bear market casualty.
“This used to be all about making money off the new IPO or the hot tech stock of the day, but today’s market is so much choppier,” Townsend said. “There’s a much greater emphasis on education at these shows. Two years ago, everybody just wanted to get in to make money instantly, but now they view it as a commitment.”
Townsend said traders understand that they can’t ride the bull market to easy profit anymore; instead, they may need to learn complex, riskier techniques such as shorting to thrive, he said.
More traders also are studying the nuances of industry sector analysis to try to gain an edge, he said. That entails learning how economic or other forces affecting one industry may also affect another. The key is to learn how to pick strong stock sectors and avoid, or short, those that are weakening.
James Curley, an exhibitor with Chicago-based Non-Linear Technologies, agreed. “The theme is back to basics,” he said. “The guy who was driving a cab and heard about trading from a friend, thinking he could get rich, is gone.”
Fabila, who said she flamed out in a brief swing-trading foray last year, stopped by the Irvine-based Online Trading Academy’s booth and signed up for a one-week boot camp in September. She hopes to make a more serious run at it after graduating.
“Trading coaches,” who help people cope with emotional issues such as the stress of losing money, also have become fashionable, Townsend said.
Adrienne Toghraie of Cary, N.C., who charges $7,500 for two days of one-on-one coaching plus a year of phone and e-mail follow-ups, said many would-be traders “are grappling with their fears.”
Professional traders say it’s important to understand that some losses are inevitable in trading. The key, they say, is to limit losses, and to learn not to look back but to focus on the next trade.
Despite the seeming allure of trading, some attendees could only glance around the exhibit hall and chuckle at the hardware, software and services on display.
“If there were a system that worked on any consistent basis, they wouldn’t be out here selling all this stuff,” Fineman said. “They’d be using it themselves instead.”
But to longtime traders such as Terrence Brown, using part of a portfolio to play the market makes more sense than ever.
“Trading is more lucrative,” Brown said. He said he has made money in the long run through trading, although he has kept his day job and endured the inevitable slumps.
“A lot of stocks have dropped, but if you trade smartly you can make money either way the market goes,” he said. “If you’re a buy-and-hold investor, it might take another 10 years before you get even.”
