If you are going to trade the markets, there are basically three main styles to choose from. Day trading, swing trading, and position trading.

This blog is all about making the somewhat obtuse concepts in trading easily understandable by relating them to experiences in life that even the non-trader can understand.

With that in mind, swing trading is like a summer romance you typically have in your youth. You hang out with your position for a while, knowing that eventually it will come to an end. As long as things are good you’ll stick with it, but if it starts to go south, it will be time to move on.

Position trading is like being in a long-term relationship.  You put up with a lot of crap because you think that over time it will all be worth it.  Sometimes you forget the reason you got into the position in the first place, but like an old pair of jeans, its comfortable and you are used to it.

Day trading however is the “wham-bam-thank-you-mamm” of the markets.  I’ve done thousands of day trades over the last twenty years and even thought I barely cracked double digits by the time I met my wife, I have just enough experience in that area as well to show you how closely related the process of trying to have a one night stand and day trading are.

You will find your candidates in the “hot” places – When you are looking for mister or misses “right now,” chances are you won’t find them hanging out at the library or a church social on Saturday night.  If your experiences are similar to mine you’re more likely to find them where the action is, like at a club, or a local bar, or the Greyhound bus terminal.

The same goes for finding stocks to day trade.  You will be wasting your time trying to find them in out of favor or stagnant sectors.  Instead you need to focus the areas that are currently “hot.”  If ags, tech, and oil are hot, then those are the sectors you should look to find good plays in and you should maintain a “go to” list of those stocks that you can mine for opportunities.

You look for specific traits and types of behaviour – If you spend your night at the bar trying to sweet talk the shy gal who hides behind her friends in the corner while nursing a white wine spritzer, chances are you will end up with the “Macaulay Culkin.” No…not blowing it with Mila Kunis and getting strung out on heroin, but going “Home Alone.”

Hah…get it…..?  Going home…see cause he was in……ya know….that movie?

Meh….!!!

No, you are going to have a better chance of success if you focus on the babe with the pierced tongue, ass-hat tattoo, who is doing jello shots off the waitresses’ chest.

A stock that just lays there when you day trade it won’t make you any money.  You are looking for ones with low, but not thin floats and the tightest possibly spreads.  Ones that move fluidly on 5-min charts.  You want stocks the have a history of basing and then breaking out for nice moves.  These are the traits and behaviors of good day trading stocks.

The later it gets the worse your chances are -  The time to make your move at the bar (or bus terminal) is early in the evening when you are fresh and the pool of potential candidates is largest.  If you find yourself still circling the dance floor looking for a partner when they announce “last call,” the pickings are going to be slim and you’re probably done for the night.

I get it Fabio, I’m sure that you once “closed the deal” after the house lights went on, or maybe even in the parking lot while walking to your car, but let’s be honest, those are the exception to the rule.

The best time to day trade is in the first one to two hours of the trading day when overnight news flow and order imbalance can push stocks for nice quick moves.  As the morning wears on, and equilibrium begins to take hold, stocks tend to meander through the mid part of the day.  The last two hours are when profit taking comes in and buy/sell programs square positions making the environment for day trading less than optimal.

Watching your friends “score” before you can mess with your head – When a group of guys or gals goes out for drinks on a Friday night the party line is that everybody just wants to hang out and chill with each other.

But then the first member of the opposite sex approaches the pack, and the dynamic changes very fast.  As you watch one after another of your friends peel off from the group and head for the exit with a partner in tow, there is often a sense of “missing the boat” and an urgent desire to “get on board” or be left “high and dry” to stretch the nautical metaphors to the extreme.

This can result in a lowering of standards and a liaison with a less than desirable companion for the night.

Chat rooms, Twitter, StockTwits….they buzz with the day trades that everybody is taking except you.  They swarm around your head from the minute that the opening bell rings, and if you are not careful you will find yourself bending a rule, cheating a trendline, or anticipating a move in order to “get in the game.”  That self-imposed pressure to get into a day trade will over time wreck your P&L.

There is no “commitment” attached to it – Let’s face it, men are pigs.  I’m not breaking any “guy code” by saying this.  Women know it, and guys will admit it after the first beer.

But men + alcohol = a whole nuther level of swinedom.  And (men + alcohol) * (looking to score) = acting in ways that we will never tell our mothers or daughters.  When this equation is in play most of us are just looking to find an attractive partner, retire to a mutually agreed upon location, and end the night six to eight ounces lighter.

It’s an act totally devoid of any implied or actual commitment.  Yet this very unflattering and ugly trait in one context can be very powerful in another.

With day trading your lack of commitment is key.  You find the trade, you enter the trade, you take it to its conclusion and you move on.  Simple, cut and dried.  Being able to repeat that pattern over and over, without any emotional attachment to a position, is a key trait in successful day traders.

When it goes bad you have to end it quick - This point is somewhat related to the one above.  Every woman has been there, and most guys (if they’re honest) have been there too.

It’s “on.”  You are “there.”  Or as they say in Latin, you are “doing it.” And then your mind starts to wander.

“I wonder what time my dental appointment is next week?”

“What sort of freak hangs a macrame’ owl on their wall?”

“Is Aquaman really a super hero if his only power is to talk to fish?”

You worked hard to get here, but not it’s just not going well.  You are not enjoying it and trying to decide which is worse, faking a cramp or the big “O” just to get it over with.  Either way you just have to end it fast.

Day trades are usually based upon tight stops which allow for outsized positions.  When those positions go bad, you have to get out of them as quick as possible to avoid unneccessary and extensive damage to your account value.

When finished it’s best to move on – Richard Lewis used to say this about one night stands…

Going into them, every time…I would start out so passionate and loving.

“Oh you are the best.  I love this, and I love you, and I love being here with you.”

And I would promise myself that once I was “done” I would still keep up that feeling and that vibe.  So I would be making love, and saying all these things, these beautiful, deep, poetic things.  Things that could have come out of books by Wordsworth, Blake, and Shelley; and the minute I came I would be like…..”uh…hey, do you have any frozen waffles.”

When things “conclude,” any thoughts of hanging around are probably misguided.  Sure you feel like a douche’ for all the stuff you said that got you here, but trust me, you will only make it worse by trying to pretend that your intentions were anything other than what they were.

When you close out a day trade, win or lose, it’s best to just move on to the next opportunity. If you lost and the stock starts to move back up you will probably be annoyed and might try to chase it.  If you won you might get cocky and think you are the “axe” in the stock which can lead to over-trading it.

Trying too many positions can be dangerous –  Pulling out the Kama Sutra on a one night stand is generally a non-starter unless massive amounts of alcohol are in play on both sides.  There are some positions that you just have to know someone a bit better before you try them out.  I vividly remember one encounter myself where when trying to do my best Peter North imitation I heard the phrase “oh no, we’re not doing that,” about ten times.

Day trades move fast and you have to manage them much closer than swing or position trades.  Because of this, it’s hard to have more than two or three open at one time.  If you do, then chances are that you won’t be able to manage them in the most optimal way.

Give me some feedback.

What are your experiences with day trading and one nights stands?  Let me know and I will add them in to an updated version of this post next week.

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