Can a teacher be a trader?
May 15, 2011 12:23 PM   Subscribe

Should a teacher with summers off and a little bit of savings mess with the Day Trading system to try and make some extra bones?

I'm tired of being middle class, we get nowhere. Gas is $4.30 a gallon. Milk is $3.50 a gallon. Taxes go up, revenue goes down. Last year I was asked to take a 10% salary reduction or lose my job. I notice that no one asks the traders and Wall Street people to take a salary reduction, quite the opposite - the Dow was up in the 12,000+ range this week. That's better than before the crash.

I'm tired. I'm tired of being in the middle. Nothing comes for free, I have had to work to get everything I have, which ain't much.

I am a teacher, I have my summers off. I have been thinking about dabbling in the day trading market (you know, eTrade and all that jazz) with a little bit of my savings. Where would someone like me go to start looking into this? Is there a book, series of books, or something like that I could use to get started knowing some intermediary protocols and strategies for the hobby trader market?

I'm smart, I love mathematics, and I have time on my hands. I'd rather use my head to not get another job, I work 70+ hours a week as it is as a teacher.
posted by anonymous to Work & Money (33 answers total) 9 users marked this as a favorite
Should a teacher with summers off and a little bit of savings mess with the Day Trading system to try and make some extra bones?

No, the most likely result of doing this is turning your little bit of savings into no savings. That isn't guaranteed but its what happens to most day traders. If you absolutely must, the "safest" way (scare quotes intentional) may be to buy undervalued stocks on a dip in the market and sell call options against them. Although the size of your capital would really matter for that.

I'm not certain what the best books for a hobby trader are. I know they exist but I have no idea which are the best and don't want to steer you wrong. So I have to stick with the answer to your first question; the most likely result of starting to day trade with your savings is ending up without savings.
posted by Justinian at 12:27 PM on May 15, 2011 [4 favorites]

Here is what the Securities and Exchange Commission says about day trading:

"Day trading is extremely risky and can result in substantial financial losses in a very short period of time."

You can do it, but the chances of making much money at it are slim to none.
posted by procrastination at 12:28 PM on May 15, 2011

Please don't do this. You're far more likely to lose all of your savings than to make a little extra money.

If you want to invest your savings, use a diversified strategy and make investments that you plan on keeping for years. As an individual investor, the transaction costs associated with buying and selling assets will suck up every bit of profit you may earn if you do short term investing.
posted by eisenkr at 12:30 PM on May 15, 2011

Do not do this. Day trading has negative expected returns over market. I.e., the average person will make less money than they would have just by leaving the money in an index fund, and quite probably lose money.

You are competing against Wall Street professionals, high speed computers and insiders. This is comparable to deciding to try to make some extra scratch playing poker against world champions.
posted by justkevin at 12:32 PM on May 15, 2011 [2 favorites]

I thought the markets were typically a bit down over the summer? I am sure that someone else can speak better about this, but I would think that is the time to not get into day trading?
posted by kellyblah at 12:33 PM on May 15, 2011

If you have money to invest, perhaps you could purchase a run-down rental home, spend the summer renovating it, and make extra income as a landlord? Next summer, do it again. Get good at home repair. I've known lots of teachers who do this and it certainly seems satisfying. Maybe even pair up with another teacher you know who is bored and looking for extra work in the summer?
posted by (Arsenio) Hall and (Warren) Oates at 12:35 PM on May 15, 2011 [8 favorites]

I thought the markets were typically a bit down over the summer? I am sure that someone else can speak better about this, but I would think that is the time to not get into day trading?

Sell in May and go away? I've heard the saying but am not entirely sure what it means or why. I think it may have to do with some funds selling assets for tax and other filing purposes.
posted by (Arsenio) Hall and (Warren) Oates at 12:36 PM on May 15, 2011

I imagine the consensus here will be a resounding "hell no," but we're just a bunch of random folks on the Internet. So why don't you take some advice from self-made billionaire Mark Cuban:

"If you really think of it, when a stock doesn’t pay dividends, there really isn’t a whole lot of difference between a share of stock and a baseball card.... I know that sounds crazy, but the stock market has gone from a place where investors actually own part of a company and have a say in their management, to a market designed to enrich insiders by allowing them to sell shares they buy cheaply through options."

That was a choice quote, but his advice isn't limited to stocks that don't pay dividends. The overall theme is that the retail stock market is for suckers.
posted by rkent at 12:36 PM on May 15, 2011 [1 favorite]

Take a look at Mutant's profile page and scroll all the way to the bottom to "Why Retail (industry term for people like you) Loses Money in the Market."

Without access to significant capital you're going to get killed on transaction costs alone. If you're looking at making money on the side, I would seriously look at online poker.
posted by geoff. at 12:38 PM on May 15, 2011 [6 favorites]

Oh, and as some serious advice:

I am a teacher, I have my summers off.

Why don't you learn a skilled trade? It is sort of a stereotype (but not entirely a joke) that all the public school teachers in Massachusetts are house painters over the summers, for instance. I will admit to not having much knowledge about how the guild/apprenticeship system works, and whether it would be feasible to advance through such a system in the summers only, but if you could spend 2-3 months full time developing a niche skill, you could probably get to the point where you could charge $100/hr for spot projects during the summer months.

It is a bit risky, but less so than fiddling with day trading...
posted by rkent at 12:41 PM on May 15, 2011

Instead of day trading, I would research, research, research for longer-term investments. You don't have to have a "buy and hold" strategy, but think about holding onto investments for at least 6 months-2 years. There are still mid-and large-cap stocks that are trading at a discount due to the recession. You can look for stocks that are relatively safe with big dividends, too.

All the research I've read suggests that even mutual fund managers and financial planners can't beat the market long term, let alone predict prices day-by-day. During the peak of the recession, I bought some stocks on their downturn and am way, way up, but I still didn't beat the overall market since it took such a dip in the recession.

Please use your time to research and build a diversified portfolio that you are comfortable with for your long term goals.

If you don't have a retirement account set up, I really like my Vanguard Roth IRA, but you need $3000 to start an account. I also use tradeking for a brokerage service outside of my retirement savings, and I've been happy with them. They have $5 trades and free webinars and research tips and articles. You can start with any amount, too.

Maybe this spring, before summer stir-craziness hits, you can play around with It lets you set up an account with any amount with a play account and pretend to buy and sell stuff. You can practice day trading safely this way, and see for yourself what you want to do this summer.
posted by shortyJBot at 12:45 PM on May 15, 2011 [1 favorite]

Oh, and as far as being unsatisfied with rising prices and everything, as you mention at the beginning of this post, a book really changed my perspective about money and has me happy with voluntary simplicity: Your Money or Your Life. It's been one of the reasons that I am happy living on a teacher's salary instead of being a speech therapist in a nursing home, where I would realistically double my income. I would rather have paid time off than money.
posted by shortyJBot at 12:49 PM on May 15, 2011 [3 favorites]

Why don't you spend the first summer trading imaginary money and see how you're doing come September. If you would have made a profit with real money, you could consider 'going live' with your savings the following summer. Walk before you run.
posted by MighstAllCruckingFighty at 1:05 PM on May 15, 2011 [2 favorites]

The money the market is "making" is yours. Don't. Paper trade as you would have with your real money if you want to see what would have happened.
posted by kcm at 1:09 PM on May 15, 2011 [1 favorite]

When it comes to making money on market fluctuations, think about this: outfits who make money out of this for living hire people to investigate new and novel branches of mathematics to work up improved trading models. They hire some of the top Linux kernel hackers to develop custom kernels to shave milliseconds off network latency on the systems they run those trading models - I read a presentation that claimed a millisecond improvement in performance is worth something like a quarter million a day to the firm employing one guy; they move their business as physically close to the exchange networks as they can to reduce latency.

Those are the people making serious money off speculative trading, and insiders pulling the strings on deals. Those would be the people competing with you. Bad idea.
posted by rodgerd at 1:17 PM on May 15, 2011 [2 favorites]

You say you don't want to get a summer job since you already work so much during the year, but, truly, selling clothes for a summer at Macy's would be way easier and less stressful than actually trying to make money day trading.
posted by that's how you get ants at 1:38 PM on May 15, 2011

MighstAllCruckingFighty has a good point that is the approach that I took. From experience I also agree with that's how you get ants

My husband and I have done well with investments (not day trading), not big money but it has given us a couple of vacations which were nice, but it is time consuming and incredibly frustrating to watch the money go down (and it will) but as they say it's not gone until you go to take it out, which is how you try to justify it when you lose it.

If you are really into the charts (i.e math gives you great happiness) consider it gambling and have a little fun with it. I know a few people who have lost their shirts in pursuing this as "easy money" it's not and it's not something that I would consider steady income.
Above all
Don't put anything in that you are not prepared to loose.
posted by ibakecake at 2:00 PM on May 15, 2011

"Day trading" isn't day trading anymore, it's "high frequency trading," and they deal in milliseconds. It's not for regular people. It would make about as much sense for you to do this as it would to build a bottle rocket in your back yard and charge to send people into space.
posted by Corvid at 2:20 PM on May 15, 2011 [1 favorite]

How about playing online poker instead? Or writing software? Those both use math skills and don't require you to risk as much (or any) initial capital.
posted by 3491again at 2:33 PM on May 15, 2011

I did this. I became fascinated with the markets, got drawn in, and ended up spending years learning how to make money trading equities -- all alongside doing my regular job. It worked out -- my gains were enough to put down a big payment on a nice house -- but not until I'd invested well over 1,000 hours in educating myself about how the market really worked.

If you're not willing to go (at least) that far, you're going to lose your shirt. In the world of trading you are going up against people who have spent years (or decades) learning this craft, people with access to much better information than what is available to you. You're almost certainly going to end up wiped out by them unless you, too, put in those long years of study required to understand why the markets (and individual stocks) move the way they do.
posted by dacoit at 2:47 PM on May 15, 2011

Here is an easy way to make a small fortune by day trading: First, start with a large fortune...

You will be a minnow in the shark tank. Don't do it.
posted by pmb at 3:35 PM on May 15, 2011

No. It's gambling. Investment is not gambling. If you think day trading is a way to get rich you do not understand anything at all about securities and you shouldn't try something that only the very highly skilled can succeed at.

Is the Motley Fool still around? Go there and learn about why you should invest in securities for 5 years minimum.

I'm sorry you're tired of being middle class, but there is no way to change that that won't require a significant investment of time and probably finance over a number of years.
posted by tel3path at 3:45 PM on May 15, 2011

No. Do not day trade. First, the gains are so small that the commission fees alone will eat you alive. Second, daily prices are essentially random, and its only over the long term that prices match company performance (i.e. make sense). You need The Motley Fool and click on the "How to Invest" tab.
posted by babbageboole at 4:22 PM on May 15, 2011

Also, there's an old adage that is apropos here: to simulate the effect of an average investor day trading, take a whole bunch of twenty dollar bills. Now, slowly rip them into shreds and feed them to your toilet. That's about how it will go. (I've heard this adage about playing Keno as well, and day trading and Keno aren't that far from each other).

The stories you hear about people getting rich from day trading are actually due to luck (on the order of winning the lottery, so you may as well do that) or large enough buys and sells (on the order of millions of dollars) that random fluctuations over a long period of time and commission fees don't matter.
posted by babbageboole at 4:25 PM on May 15, 2011

I'm going to give a little bit of the opposite advice. I don't suggest you do day trading, no. Opening an account with E*Trade isn't really a bad idea though.

A few years ago when the market was in the tank, I bought 10 shares of stock in Apple for about 74 dollars each. When I was moving across the country last year, I sold them for about 260 apiece to help me pay for the move. (Although, I'm kicking myself a bit because it's up to 340 a share now or something, but this is why you should get advice from someone who knows what they're doing.)

Anyway, it's not a bad idea to invest in some stocks on your own, but it is a bad idea to do a day-trading thing. You're not going to get rich one way or the other, but if you make a savvy move or two now, maybe you'll be able to afford something nice in a couple years (I moved, maybe you get a new TV or something).
posted by King Bee at 4:48 PM on May 15, 2011 [2 favorites]

Learn a new, knowledge-based skill. Look at what might be in demand in your region, and fill that demand with a skill that bars entry to those who haven't put in the study or practice. Pick something you're interested in: data recovery? photography? lock-picking? refinishing decks? performing close-up magic? making balloon animals? designing WordPress pages?

Be the guy who people know that does ________.

Get good and offer your services for hire. You may not escape the middle class -- a class very many educated people would love to count themselves a member of, mind -- but you could get to a point where you don't think about the price of milk.

And who knows, you may find yourself in a new career later on.

Count the ways you are rich. You are rich in time. Use it.
posted by meadowlark lime at 7:21 PM on May 15, 2011 [1 favorite]

My dad day-trades. Like you, he is smart, loves math, and has lots of time on his hands (he's retired.)

He will occasionally make some money from day trading, and occasionally lose some. Right now he seems to be doing a tiny bit better than breaking even overall.

But to get to that point, he's basically treating day trading as a full-time job. He's on the computer for as long as the market is open, tracking his stocks. He Tivos the financial tv shows and watches them when the markets are closed, and reads the Wall Street Journal, studying the most minute details possible. It's probably not 70 hours a week, but it's well over 40 for not much financial reward. This is fine with him because he's not expecting it to be major source of income, more like an intellectual challenge mixed with gambling.

If I were you, I'd look to see if there were anything else that might be a less work-intensive and less risky investment of my time and money.
posted by creepygirl at 8:00 PM on May 15, 2011 [1 favorite]

I am currently trading my own account full time. I have been involved in the trading of equities and derivatives for over 25 years. First thing you need to do is to determine what you think your edge will be. Is it your research, your speed to the market, some computer program you developed that spots certain market patterns, etc? Then, determine how best to exploit that edge. Before you do any of that, determine how much money you have you are willing to risk. Write that number down. When (not if) you hit it, stop. You also need to be very clear on what your time frame for a trade is.

My "A" advice is to find someone who does this that is successful at it and has been successful for a long period of time in many different types of markets and see if you can learn from them. There are a few legit places that will try to teach you for a fee. (One place with which I have no affiliation other than I met the two owners many years ago when they traded on the CBOE is Bright Trading or

If you are not committed to be completely dedicated to it while you do it (summers, vacations, etc) you will lose your money quickly. With training, hard work and dedication, you will lose it a lot slower in all likelihood. There are a small percentage who are successful and they make consistent good money.
posted by JohnnyGunn at 9:32 PM on May 15, 2011 [1 favorite]

Agreeing with everyone else that this is a fool's errand. At worst, you should invest in a mutual fund or index fund. As others have mentioned, your competition in individual stocks is no longer persons, but rather computer programs that trade by the millisecond. It's a game rigged worse than in Vegas. Will you occasionally get lucky? Probably. But will you end up in the black? Probably not.
posted by Gilbert at 10:03 PM on May 15, 2011

Read A Random Walk Down Wall Street. The stock market breaks a lot of our assumptions about the way the world works; it moves pretty much randomly, with a very slight upward trend over long (5+ year) time horizons. Can you afford to ride out a 5-year storm?

Those rich people on Wall Street made their money through factors you can't control. They had lots of capital to start out, so they could ride out the storms. They had decades for gains to accrue. They worked 70 or 80 hour weeks doing nothing but trading for years and years. Most of all, they were lucky -- you never hear about the would-be financiers who bet everything and lost everything.

Some other rich folks made their money by taking money from suckers: charging $20 for a retail trade that costs close to nothing to execute, or 1% of assets annually for a computer-controlled mutual fund that costs nothing to run. Don't be one of the suckers.
posted by miyabo at 8:28 AM on May 16, 2011

I have known more than a few amateur day traders who were very unpleasantly surprised by the tax bills, too. If you decide to do it, look into that part, too.
posted by small_ruminant at 12:57 PM on May 16, 2011

Is it possible to make lots of money day trading? Yes.
Is it likely? Heavens no.

The market is the ultimate hive mind and that sort of collective is hard to beat. How can you do it? With superior knowledge. For instance, if you get to know a particular industry very well you can perhaps spot where the collective seems headed in the wrong direction. Mob mentality can be a weakness that a knowledgeable investor exploits. Michael Lewis has a few examples of people who did just this sort of thing in his book "The Big Short." You will notice though that he himself advocates, and personally practices, more traditional investing for the long term. The statistics are stacked against the day trader. Very few individuals beat the market over the long term, very, very few, and this includes the pros.
posted by caddis at 2:10 PM on May 16, 2011

My father "retired" early (in his early 50's) and has been day trading ever since. However, he spends every waking minute following the markets--including waking up at 3-4am to watch the Asian markets open...seriously.

Assuming you have the education (or desire to learn), you need to be type-a and a little bit obsessive to really have a chance at being successful.

Since I started working two years ago, I've seen double-digit returns both years. But, I did hit some 'homeruns' (SGI, NFLX). I'm lucky enough to have my father to filter TONS of market news and provide insight I couldn't possibly get while I work my fulltime job.

If you decide to go through with this, I would advise you to stay away from options. They are appealing because the idea that you can 'leverage' (not quite the right term) your cash to try and get a larger return--risk and return being positively correlated. It's not worth it. Read up on max-pain theory. The biggest example of manipulation in the stock market is the week before options expiration, very frustrating.
posted by my_second_username at 4:36 PM on May 16, 2011

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