Why Day Traders of ’09 have become Swing Traders of ’10

I was recently talking to Idan, CEO of FocalEquity.com, when he mentioned something I thought was worth repeating. From '09 - '10, Idan says that he has seen a major change in trader mindset. Idan believes that shorter term traders have moved to longer time frames due to a change in market conditions.

Read on to see how Idan has come to this conclusion and be sure to visit FocalEquity.com.

As the CEO of www.focalequity.com, I have witnessed staggering changes in the minds of retail investors in 2009. The most interesting phenomenon was that most day traders have been completely swept out of the current type of market.

In 2010, FocalEquity had about twice as many posts on swing trades or momentum trading and yet that increase was merely one sixth of the decrease in posts related to intraday trading or day trading. An interesting day trading study, "Day Trading – An Analysis of Public Day Trading at a Retail Day Trading Firm" was conducted by Ronald L. Johnson. In this study, thirty day-trading accounts were followed at random. Out of the 30 accounts, 80% of the accounts lost money, and the other 6 (or 20%) were profitable but had a lot of trades that assumed very high risk of failure.  For the most part, the profitable accounts only made money due to one or two trades over a 30 day period.

In 2009, the markets did not look back, after the bottom in March of 2009, anybody that was not a believer of the rally was swept out of the market. If you take into account the increase in risk that day traders took to become more profitable due to lower volumes and volatility in 2009 and 2010, they had most likely lost money and did not want to participate in the markets anymore. This is why it is important to seek guidance if you are an individual day trader.

In the past twelve months, over 66% of traders on our site have switched from solely intraday trading, opening and closing positions in the same trading day, to swing trading. In 2009, stock traders on our site have posted over 110,000 comments of which 72% had day trading questions or recommendations, leaving merely 16% of comments related to swing or longer term trading and 12% of comments that were unrelated to the markets. The transformation, which some traders say began in April of 2009, has left FocalEquity.com with over 13,500 comments in the first quarter of 2010 (54,000 comments annualized) of which 33% were day trading related and 54% were swing trading related.

The statistics above give us a very good indicator to some other causes for this conversion to longer term trading. The most apparent statistic is that the number of comments on our site from 2009 to 2010 has been cut in half. There is no doubt that this outcome is a direct consequence of the volume falling from 500 million shares traded a day on the SPY in March of 2009 to 150 million shares in 2010. Volatility (trading the VIX index via ETF VXX) has also fallen from over $96 to $16.23 making day trading less profitable as stock prices are less volatile or move less each day. Day traders need both metrics to be elevated in order to trigger more trades each day and make more profit per trade. This was exactly the case in 2008 and early 2009 but not in late 2009 or 2010.

This is why I have decided to change the strategy for my service “FocalEquity Alerts & Analytics” and focus more on swing trading and position oriented trades based on macro views for the near term. Using both fundamental valuations and technical analysis, I am able to more accurately determine which stocks are extremely overbought or oversold. For example, overbought stocks such as UTI, which I have been short over the last 2 weeks, have seen remarkable down side despite an up-trending market.

It is important to understand that different strategies work at different times, and what makes a good trader is not necessarily the profit that he/she makes in one year, but the ability to adapt and cease both day trading and swing trading opportunities to become profitable over the long run with sustainable consistency and repeatability. Being able to discuss different trades or seek guidance from expert traders who have constantly outperformed the market is the best way to stay afloat.  For the first quarter of 2010, results show that swing trading has been the more profitable than day trading.

CEO of FocalEquity.com


16 thoughts on “Why Day Traders of ’09 have become Swing Traders of ’10

  1. As a professional trader I would recommend day trading first to new traders as it makes it much easier to sleep at night. Market club was so bullish on oil at extremely overbought S&P readings. Now that doesn't make sense to be so bullish on oil when the grand daddy of markets is so overbought. It doesn't take a rocket scientist to know that any weakness in the S&P will rock commodities.

    BUT had you been a day trader of oil futures. One could have easily pulled in $500 today in day trading profits with very little capital risk. And then the great thing, sleep all weekend, no capital at risk and go back to day trading on Monday.

    Yah, I swing trade but the bulk of my profits come from day trades as you never know when the party is going to end. Look at GS, you think those swing traders are happy. Nope they got hammered!

  2. Interesting, since almost everyone else I read is saying very short-term trading is the only thing working in these choppy and volatile markets. Everyone else is saying day-trading is up and intermediate trading is way down, leaving swingers fairly in the middle, moving toward shorter term swings.

  3. Off subject, but does anyone know why so many so called analyst, guru's, newsletters, got the Market wrong calling the Bear is coming again for a yr ? Record yr run...and all I kept hearing, reading, the market is going to crash...Unreal, talk about working against you...

  4. What we found that was remarkable (and new) was the fact that day traders disappeared. It is true that a lot of traders are doing both. But over the last 12 months the transition between day trading and swing trading has been absolutely remarkable.

    Day traders '09 both either got scared out of the market, or had to switch to swing trading to make their profits.

    And the fact that this actually happend on focalequity.com was a phenomenon i wanted to talk about.

  5. hmm... since I don't want to be part of any crowd, guess I'll have to sharpen up on day trading skills now.

  6. Trading is fractal. That is, be it in the 10m, 30m, daily, weekly or monthly time frames, its all swing trading. But it is not easy and requires strict discipline and focus.

    A point of caution -
    In this game some make money only by trading. Other through their eloquence and salesmanship make money by providing commentary or services as experts but may not trade. Some do both.

    If you are going to pay for a service ask for a copy of that service's actual trading brokerage statements for the past few months - not some back-vested trades that may have no money on the line or a record of back tested system performance.

    It is critical that we all study and develop discipline to learn and develop the fundamental and technical analysis side of trading as well as be able to decisively use well developed risk management and execution. Services are good only after a trader has developed solid foundations. And should only be used for a convenience and a second opinion only if that service can validate their performance over several months.


    When will you have your triangles and stock screen service set up for for 30m 60m and 2hr time frames?

  7. assume you wanted to say:
    ability to adapt and seize both day trading and swing trading opportunities... (not cease = stop)?

  8. I subscribed to a day trading site for a while,
    those 10-minute charts and constant in and out drove me nuts.
    Now I use trailing stops to follow the trend,
    and when I'm stopped out, I study the charts and the Triangles to determine
    whether to re-enter or go neutral until a better entry or switch to a short.
    Happy Trading.

  9. makes sense, bull market behaviour is quite different to bear behaviour. separate question here that maybe someone like adam can answer,why is james mound adamantly yen bullish when price action suggests otherwise???

    1. Ken,

      Different thoughts are what make the market what it is, a fascinating kaleidoscope of ideas.

      All the best,

  10. What is the substance of the Article Idan? We are all in a way Day trader and position traders alike. A good Trader is well rounded, balanced between daytrading, position trading ect...Not sure what is new here?

    1. What is new, is the fact that the amount of day traders over the last 12 months has substantially gone down and swing trading has become both the most successful and popular type of trading.

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