The Probabilty of a Black Swan Event

[Mr. Charts]

That's very helpful. It also says to me that day trading properly managed is not as dangerous as some would have you believe. As a balance to the intense concentration required during the trade (I'm guessing here on the concentration bit because I've no experience) it must be nice not carry any out of hours risk.

That's spot on. The degree of concentration varies greatly. Essentially if there is clear evidence of the move failing or reversing I tend to exit straightaway. If the move peters out the choices for me are to exit all or part of the position; the latter to lock in profits. It's always about the evidence in front of my eyes, not wishing or hoping for anything to happen. My personality is to minimise risk anyway so there is no point holding overnight. There is enough in life to worry about without leaving your funds open to chance, the unexpected or Black Swans.

 

[Mr. Charts]

This is very helpful. As a follow up, do you know what the cause of the large drops were? Were they flash crashes or legitimate "bad news" drops that reverted back for a short time?

This seems to point to my current stop technique of a stop quote limit order being the correct one to use when day trading as protecting against flash crashes is the very reason I use it.

One was, if I remember correctly, the Secretary of the Treasury suddenly resigning during market hours; that was a long time ago. I can't remember the others.

Bear in mind that a hard protective stop loss might not be filled in a fast market as you do need someone to take the other side of the trade and there might not be anyone or others might be ahead of you with their fills !
Some firms do offer guaranteed stop losses at a price.

Control your position size and make sure you don't have multiple unhedged positions open in one direction so risk is minimised.

 

[Dr. Toad]

One was, if I remember correctly, the Secretary of the Treasury suddenly resigning during market hours; that was a long time ago. I can't remember the others.

Thanks for the information. This makes me feel a bit more comfortable with day trading. Would be good to hear other experiences as well if there is anyone else who has gone through this.

Bear in mind that a hard protective stop loss might not be filled in a fast market as you do need someone to take the other side of the trade and there might not be anyone or others might be ahead of you with their fills !
Some firms do offer guaranteed stop losses at a price.

I set my stop at the risk % I am allowing the trade and set the limit at approximately 2-3 times the spread I am seeing when I buy in. This may seem like a large range for a day trade strategy but for the strategy I am using it is somewhat unlikely the stop I set will get hit, so it is more of a disaster stop and I would be ok with a decent amount of slip on it. I realize this does increase the risk of the trade a bit, but I am using about 0.5% of my account as my risk so not significant and I can eat some slip.

I also set an alert for when the price is nearing my stop so I can pay attention and make sure I don't get gapped over.

Are there any firms that offer guaranteed stops on pure equity trades (as in trading the actual stocks and not derivatives of it) that you know of...this may be a good route for me since I am only doing one trade a day right now and I know my stop immediately after buying in and don't need to adjust it up. The small amount of googling I have done seems to indicate that this is only an option for CFD's which I am not familiar with and/or only available on certain stocks. I will keep looking though.

I really haven't looked much at different brokers, I am using Merrill Edge right now since I get 30 free trades a month with it, but I guess I should take a closer look at this to see what is best for me.

Control your position size and make sure you don't have multiple unhedged positions open in one direction so risk is minimised.

Can you expand on this a bit? By unhedged positions are you referring to using leverage or buying options in the opposite direction or something else? Right now I am essentially placing most of my account into one stock for the day. So basically I have one relatively large sized position in one direction, but I am only allowing for a small movement against me (~0.5% of my account). This seems to go against what you are saying.