Friday, October 20, 2006

Part-Time Trading : It Can Be Done! -- Part I

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Regular readers of my blog, or anybody who has read my trading goals, know that I have a day job and trade around it. I am what is commonly known as a part-time trader. I received an e-mail about the topic yesterday, asking whether I'd be better off "going from part-time to full-time".

Opinions vary on whether part-time traders can be successful. Two prominent trading bloggers take opposing views. Dave Landry believes part-time trading is a good way to not "micro-manage trades", while Charles Kirk doesn't think it's likely to trade successfully on a part-time basis. Mr. Kirk wrote:

When I made a couple of trades this week (both of which turned out to be unsuccessful because I was late to the party), I'm reminded of a lesson that I tend to forget - you can't trade stocks well on a part-time basis. At least I'm not smart enough to. Perhaps you're a bit more focused than I am.


Don't let Mr. Kirk fool you . . . the dude is uber-smart. I don't go a day without reading his site. However, I have to respectully disagree with his statement. Not only do I think one can make big gains trading part-time, I believe it can be better for certain types of traders. Most notably, for swing traders who hold stocks anywhere from a few days to a few months.

My greatest battle as a swing trader has been, as Mr. Landry would say, not micro-managing my trades. While I do work full-time, I have access to a computer at almost all hours of the day, and can view streaming real time quotes. However, and some of you may think I'm crazy for this, I don't look at them. I've learned to turn off the quotes, and I'm all the better for it. In my opinion, one of the worst things a swing trader can do is watch every freakin' tick. Those little buggers can drive a swing trader crazy. I can't count the number of times I've pulled out of a trade based on the "noise" of the ticks. Of course, most of the time the ticks were just that, noise, and my trades would go exactly as I had expected when I made them. Once I shut off the streaming quotes and let my stops work for me, my trading results went parabolic.

Now I only check my watchlists and current positions at the open, one hour into the trading day, at lunch, and during the last half hour or so. There are specific reasons for each of those times. The most important quotes for my style of trading print at the open and the close. The first hour (and first half hour) point tells me if the open is for real. Finally, I find that lunch is a good time to get "bargain prices" for entry points, as the market tends to soften at this time.

What do I mean by letting my stops work for me? When I place a stop, there is a well reasoned purpose for doing so. I don't place stops by setting some arbitrary percentage. My stops are placed by taking into account support, resistance, the stock's volatility and moving averages. They are designed to allow for noise and only trigger if there is something fundamentally wrong with my trading idea. Therefore, there is absolutely no reason for me to watch every tick. All I need to do is let the stops do their job.

For a swing trader like me, trading full-time would not help, and could actually hurt my bottom line. Of course, you must know your time frame, and a daytrader would have to trade full- time. But for swing trader, part-time trading can be a great fit. Besided the methodological benefits, I also gain by building my trading account while still having another dependable stream of income. It's comforting to know that my next trade will have no effect on my ability to pay my mortgage or buy my kid's diapers. If that wasn't the case, I might need to buy some of those diapers for myself!

How do I measure the tone of the market, manage my watchlists and scan for new stocks? Surprisingly, it only takes me 1-2 hours per day (usually after my daughter falls asleep), after which I feel I know everything I need to be ready for the next day. In Part II, I'll go over my nightly routine.

I welcome questions and comments on this post. Feel free to post a comment here or send me an e-mail.

12 comments:

Will said...

Cheers from another trader with a full-time job and 3(!) daughters. My swing trades are done very similarly to yours, with a few quote checks at work during the day. I daytrade on my day off each week, and sometimes in the morning if I go in late.

I love trading, but if providing a stable life for my daughters means it'll take a few more years to get to full-time, it's well worth it. Folks without kids may not understand that sentiment, but I'm sure you do.

Best of luck - I really enjoy your blog!

The Market Speculator said...

Will,
It sounds like you have the best of both world's, being able to daytrade once a week. I'd like to take a stab at it sometime, in conjuction with swing trading. I've formed a methodology but probably won't be able to test it out anytime soon.

Three daughters! I thought I had it tough :)

Thanks for the kind words. Right back atcha. I enjoy dummyspots.com.

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Zoomie said...

That is great! One thing that was not mentioned...anyone can trade part time....use weekly charts if you must. And I have found weekly charts trend better than daily. IMO, you are not as likely to get stopped out in the noise.

Simply Options Trader said...

In Singapore, where we are 12 hrs ahead of U.S, I've seen some successful part-time options trader who are still holding on to their day jobs.

But I guess whether one can even do trading part-time (not to mention its success)depends alot on their current day job. If the day job is a stressful one which requires long hours or even having to bring work home during weekends, it leaves little time for one to do any research or chart study. And trading while one is tired or have not done due diligence is dangerous

The Market Speculator said...

Zoomie: I use weekly charts to define trend and S/R, so I think they are a great tool. However, I prefer trading off they daily, as I think the weekly charts are more suited to longer term trading.

Simply: I agree. Never trade when you can not devote your best effort.

Anonymous said...

I think were people get thrown off is with calling it part time. I also have a full time "job" and still trade. Obviously your goals and trading methodology have to be adjusted to how much time you can devote to trading during working hours. I am lucky in that I can watch my trades all day and still take care of what I need to do, but many traders have also been successful using weekly charts and stop buy and sell orders. Some part time traders like myself and probably you put in a lot more work into trading then some full timers. Good Luck in your trading and nice blog.


DT

The Market Speculator said...

Agreed DT. Although I label myself a part-time trader, it's probably more like a second job. I would never go half assed with that much money on the line.

BTW, you've got a great blog as well!

Luke Blanco said...

These are sound ideas, and very similar to my own trading style. Avoid the noise and hit the stops.

MT said...

It's nice to know there are others like myself out there. I am able to trade every morning for 2 hours before work and I primarily use bracket orders (through Interactive Brokers) to control risk and capture profits. I agree with most everyones comments however, its not all a bed of roses. I consider trading a second job, or side business, and there is risk that goes along with trading like any business. It can also be difficult to deal with unexpected outside daily needs and keep the business running. I spend about 3-4 hours a day with research, maintaining a trading log/spreadsheet. This is not for the faint of heart, especially if you have house, family, etc. I have also started a blog but it is not public yet since I have found it difficult to maintain it on a consistent basis. I am curious how others like DT and TMS are able to devote the time it takes to research and trade, keep a fulltime job, have a family, and publish a nightly blog. Do you sleep?

MT said...
This comment has been removed by a blog administrator.
Anonymous said...

Another issue is that succes in the market is not determined by the amount of time you put in, but by the quality of your ideas and your capacity to execute them. Execution is not difficult or time consuming for swing or position trading.

Kirk is a workaholic who only has confidence in his trading when he's putting in uber hours. He's a poor model for trading and life.