Why the aversion to trading stocks?

[Chad Seven]

If you trade using some form of technical analysis then at any given time, on any given time-frame, there will be a stock that is exhibiting the exact behavior that satisfies your criteria.

Given the above, why the fascination with forex/commodities/index futures and crypto?

 

[J Livermore]

If you trade using some form of technical analysis then at any given time, on any given time-frame, there will be a stock that is exhibiting the exact behavior that satisfies your criteria.

Given the above, why the fascination with forex/commodities/index futures and crypto?

Hi Chad,

I’ve thought about your question over a few days and some thoughts come to mind:


Individual stocks are more difficult to trade on the short side than are stock index futures.

Individual stocks are at much greater risk of adverse gaps. I’ve seen stocks gap down on the open by more than 50% and the reverse can also be true. If you are short a stock and the company is the target of a takeover or a really good earnings report comes out on a stock that is heavily shorted and your trade could be taken to the cleaners.

Day trading individual stocks is much harder than day trading stock index futures.

The margin requirements by regulation-T (in the United States) requires you to put 50% of the stock’s value down in your margin account. The only way around that is to become a member of a stock exchange or some other type of professional where you can borrow money from a bank to put into a margin account. The only legal way I know of for a non-professional private trader to get around regulation-T is to buy stock options.

Just some food for thought.

 

[Chad Seven]

Hi Chad,

I’ve thought about your question over a few days and some thoughts come to mind:


Individual stocks are more difficult to trade on the short side than are stock index futures.

Individual stocks are at much greater risk of adverse gaps. I’ve seen stocks gap down on the open by more than 50% and the reverse can also be true. If you are short a stock and the company is the target of a takeover or a really good earnings report comes out on a stock that is heavily shorted and your trade could be taken to the cleaners.

Day trading individual stocks is much harder than day trading stock index futures.

The margin requirements by regulation-T (in the United States) requires you to put 50% of the stock’s value down in your margin account. The only way around that is to become a member of a stock exchange or some other type of professional where you can borrow money from a bank to put into a margin account. The only legal way I know of for a non-professional private trader to get around regulation-T is to buy stock options.

Just some food for thought.

Those are all good points and ones I have thought of myself. Thanks.

On your point of it being more difficult to short are you referring to the process of borrowing the stock and the related costs or you do mean it is more difficult to short because the stock market has an upward bias? Presumably the former as the latter would also apply to the index futures.

 

[J Livermore]

Those are all good points and ones I have thought of myself. Thanks.

On your point of it being more difficult to short are you referring to the process of borrowing the stock and the related costs or you do mean it is more difficult to short because the stock market has an upward bias? Presumably the former as the latter would also apply to the index futures.

Chad,

I meant it is more difficult to make a profit shorting an individual stock than it is to short an index future. The last time I shorted a stock, they were still trading in fractions and not decimals so maybe it’s easier these days with more short term volatility.

Also keep in mind that when the dividend is paid and you are short the stock, it is your responsibility to pay it. That can add up if you hold a short position for an extended period of time.

Happy New Year by the way.

 

[johnander]

If you trade using some form of technical analysis then at any given time, on any given time-frame, there will be a stock that is exhibiting the exact behavior that satisfies your criteria.

Given the above, why the fascination with forex/commodities/index futures and crypto?

Because the leverage. In stocks the leverage are less.