Dylan the Day-Trader

In the Washington Post, Steven Pearlstein profiles a 25-year-old day-trader named Dylan Collins. Frankly, it’s a scary existence. I’m happy to say that I have neither the interest or skills to be a day-trader.

Dylan started at AMR in August 2010. He didn’t have a positive trading month until January. He didn’t “make his bank” and get his first paycheck until May. In June, he lost it all.

“There was this Canadian company, Sino-Forest, that we were all buying,” Dylan says. “It looked like the perfect contramove. Then, all of a sudden, trading was halted because of a federal investigation, and it turned out the whole thing was a Ponzi scheme. The whole office lost somewhere between 1 and 2 million dollars. For me it was devastating. . . basically I had to start back at square one.”

Within a few weeks, however, markets were roiled by the first big troubles in the euro zone. Markets became, Dylan recalls, “insanely volatile” — exactly the conditions in which the office at West Palm thrives. By the end of July, Dylan had made back his “bank.” In August, a year into the job, his trading profits were $70,000, two-thirds of which went to him.

It was up and down after that, and more up than down, with swings of as much as $30,000 a month. His $25,000 “bank” grew to $100,000 as he put more and more of his earnings back into the pot. Then, one day last August, Knight Capital, a small investment bank, suffered a glitch in its automated trading that caused trading in dozens of stocks to go haywire. This was just the sort of unexplained, irrational price deviations that are manna from heaven for Dylan and his colleagues. They dove in with all they had. On that day alone, Dylan’s trading profits exceeded $140,000.

A lot of people have moral problems with what Dylan and AMR do. Not me. The market has pricings and they fix them. Assuming you can consistently exploits the market’s mistakes for money–it’s a young man’s game.

“The reason why there aren’t older guys in the office is because of the stress,” Dylan says. “I can see even now that you can get burned out after doing it for five, 10 years. There are nights you can’t sleep because you’re so exposed, or you lie there thinking about the big jobs number that is coming out tomorrow and you know you’re either going to earn $50,000 or lose $50,000, but you don’t know which.”

Under stress, a trader is apt to become too cautious or too comfortable with one trading strategy — and before long he’s caught in one of those self-reinforcing downward spirals of declining income, declining confidence and declining risk tolerance.
Perhaps with that in mind, a couple of the more successful West Palm alumni cashed in their chips, moved back to where they came from and made the transition from day trading to longer-term investors.

Posted by on May 13th, 2013 at 12:27 pm


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