Trading Platforms & Slot Machines

WALL STREET SMARTS, THE BLOG, IS NOW WALL STREET SMARTS, THE BOOK.  FULLY EDITED AND REVISED WITH NEW MATERIAL ON AMAZON

One sure sign of the market's getting "frothy" is the number and silliness of TV commercials for on line trading from  brokerage firms.  My all time favorite is an ad aired in the late 1990s during the dot com bubble which featured a plumber driving his truck to a job and  talking about the island he had just purchased with the money he had made trading on line with a brokerage firm.  It seems that as the market rockets upwards, TV ads increase proportionately, promising easy, quick profits.  As with most advertising, this message must be taken with a grain (or tablespoon) of salt.

On line brokers tout their trading platforms and low trading costs.  The platforms offer computerized technical analysis with moving averages, volume and price charts, breaking news services and whatever other indicators a trader might want to see on the screen.  Some people make small trades and use leverage (margin loans) to increase profits.  Given the costs, many traders give most of their profits, and more, to the broker in interest expense and trading costs.

Traders have different trading periods.  Position or trend traders can hold their positions for several months to several years.  The goal is to find a stock which is trending upwards and hold onto it for the duration of the run.  A second type of trading is called swing trading (the new name for the old strategy of momentum trading) with near term time frames of several days to several weeks and intermediate terms of up to six months.  The shortest time frame is the day trade in which the trader holds a position for anywhere from several minutes up to a day.  The day trader will close out all of his or her positions at the end of the day.  They avoid losses they might  otherwise incur if their positions remained exposed to the action of after hours markets.  Markets now follow the sun and are open for trading twenty-four hours a day around the world.

The look and feel of trading screens is similar to that of slot machines with flashing lights and beeping alerts.  In my opinion, the similarity is not coincidental.  The gaming industry has spent a considerable amount of time and money determining what sort of display will keep a person feeding coins into a machine.  I believe that on line trading on your home computer and playing the slots in a casino share many characteristics, the fundamental one being that both activities are just gambling.

The Securities and  Exchange Commission has posted comments about day trading.  Their advice included several statements, two of which I will share with you:  Be prepared to suffer severe financial losses and Day trading is an extremely stressful and expensive full time job.  Granted, these are from a regulatory agency, but they should give pause to anyone interested in those supposed easy and quick profits touted by the brokerage firms.

If it were that easy and profitable, why would they share their secrets with you for just $7.95 a trade?  One advantage of slot machines - you need not pay a fee to pull the lever or hit the button.  You just drop in your coin and play.

Comments are always welcome.