Day, Short term trading for FIRE income?

[robnplunder]

How many of those who retired trade (day, short-term) to supplement their income? What have you been your strategy, experience? Your response would be much appreciated.


( I have set aside certain amount for short term trading but never had time to do much with it - I have a day time job. I am wondering if this is something I want to do after RE or just invest the amount elsewhere. )

 

[TallTim]

There's a parallel thread on selling cash-secured puts as an income strategy here:
http://www.early-retirement.org/forums/f44/selling-cash-covered-puts-70783.html#post1421530

That said, I would expect that many on this site would actively discourage day or short-term trading on several fronts, not the least of which are (1) taxes - the sales are short-term cap gains, so likely ordinary income ; and (2) the potential risk to preservation of capital on which much of FIRE is based.

FWIW, my FIL retired after the sale of his business (not truly very early - he was early 60s), and after setting aside trust funds for himself and my MIL as well as educational funds for his grandchildren, he actively trades the rest in some aggressive options and commodities strategies --but IMO it is important that this is more or less 'play money' to him that has funded travel, second home purchase, etc., but only to the extent that he has done well with it and wasn't counting on it.

Personally, if you can do it in a way that minimized risk with clear limits and don't dip into core funds (as a hobby, perhaps) then its fine -- but not to use it as a source of income on which you must rely in RE -- else you may find yourself no longer FI.

I would add that a lot of the potential success at shorter term trading (not day trading) comes from sticking to a disciplined approach and using more or less 'set it and forget it' trades; too much time poring over the what-ifs (esp if they are marginal or outside your pre-set boundaries) can be both time consuming and very costly.

Will be interesting to see what others have to say.

 

[Ready]

The thought of giving the government 28 or 33% of my winnings due to the trades being less than a one year holding period is so offensive to me that I would never allow myself to day trade, even if I thought I knew what I was doing.

I did buy some Exxon stock last year. I held it for exactly one year, sold it, incurred some long term capital gains, and decided never again. It went up, but not nearly as much as the Vanguard index funds, so it was just a waste of time and effort for me.

 

[brewer12345]

I set aside 1% of my portfolio for speculative, longshot bets. I cannot derail my plans if I blow up spectacularly with this amount, but if I am successful in such bets I can add significantly to the performance of my whole portfolio. Most of this amount is long term call options on specific equities, but it can be anything I think is a really good idea. Most of the time I do not invest anywhere near the full 1%, but I am there now.

 

[jimnjana]

My speculative days are over. I consider penny stocks and OTC stocks for the most part speculative. Some OTC stocks are not as some foreign companies don't want to pay the major exchanges to list their shares. Still go pretty far out on the limb on some growth stocks, but I no longer hesitate to cut losses or take profits. I will swing trade around a core position.

 

[robnplunder]

Personally, if you can do it in a way that minimized risk with clear limits and don't dip into core funds (as a hobby, perhaps) then its fine -- but not to use it as a source of income on which you must rely in RE -- else you may find yourself no longer FI.

This is what it is for me and will be (in RE). But I am beginning to question even that. Trading no longer excites me as are following local sport teams. As I get older, my taste in hobby is changing. Perhaps, things will be different when I RE. With a lot of free time gained, trading again may find a small spot in my hobby place.

 

[ERhoosier]

IMHO- Day trading by ave investor is like trying to make a living as a professional gambler. For every 'amateur' winning a spot at WSOP there are many 1,000's who lose their life savings. Even among finance 'pros', stats show very few are consistently successful at "day trading" over long term.

 

[mpeirce]

Day trading is one thing, a small amount of speculation is another.

I have one IRA that I never merged into my other IRAs. It's less than 1% of our assets so even if it evaporated, it wouldn't really change anything. And I do partake in a little speculation in that account. Since it's an IRA CG taxes aren't a big deal.

An example of what I do in that account: in late 2011 Netflix stock retreated over their missteps trying to split their streaming and DVD businesses. I watched the stock tank and picked up some shares at $82. I've held it - see, NOT day trading - and they are now around 450. It's currently has a ridiculous PE ratio of 241, but then it's better than Amazon's PE ratio of 620...

Not all my speculation has worked out as well, but I'm sure you wouldn't be interested in hearing about it...

 

[growing_older]

Day, Short term trading for FIRE income?

Blackjack and Video Slot Machines for FIRE income?

Sports betting and racetrack ideas for FIRE income?

These are all pretty equivalent. Why do we not see the second two asked as frequently?

 

[robnplunder]

Day, Short term trading for FIRE income?

Blackjack and Video Slot Machines for FIRE income?

Sports betting and racetrack ideas for FIRE income?

These are all pretty equivalent. Why do we not see the second two asked as frequently?

Ahem. I've consistently made money playing blackjack when I was young and reckless . (Can't say that for racetrack betting .)

 

[growing_older]

Oh, you're so right. Blackjack was a poor choice on my part. That game is beatable, assuming the house plays fair and you can stay under the radar. Congrats on your success. I always wondered why skilled players give it up.

 

[clifp]

There's a parallel thread on selling cash-secured puts as an income strategy here:
http://www.early-retirement.org/forums/f44/selling-cash-covered-puts-70783.html#post1421530

That said, I would expect that many on this site would actively discourage day or short-term trading on several fronts, not the least of which are (1) taxes - the sales are short-term cap gains, so likely ordinary income ; and (2) the potential risk to preservation of capital on which much of FIRE is based.

,,,

I would add that a lot of the potential success at shorter term trading (not day trading) comes from sticking to a disciplined approach and using more or less 'set it and forget it' trades; too much time poring over the what-ifs (esp if they are marginal or outside your pre-set boundaries) can be both time consuming and very costly.

Will be interesting to see what others have to say.

Just to be clear selling cash secured puts is actually a hedging strategy not speculation strategy. A $ million portfolio of consisting of well diversified cash secured puts will exhibit less volatility than a million portfolio of stocks. Same thing is true with writing covered calls.

So while option trading can be gambling (and it is a zero sum game) it is by no means always gambling.

It probably also deliver lower returns than bay and hold, and it is an open question if the lower volatility compensate for the lower returns.

I personally find it a very unlikely that day trading is good way of making money. The taxes are rather punishing and the competition is brutal. We all have heard of the huge investment that hedge funds and such make in getting their computer system a microseconds ahead of the competition.

I don't think a person at home can compete with the big guys selling any S&P 500 stock. I think is possible that among thinly traded microcaps maybe a day trader can make a living. But I doubt it.

 

[robnplunder]

Oh, you're so right. Blackjack was a poor choice on my part. That game is beatable, assuming the house plays fair and you can stay under the radar. Congrats on your success. I always wondered why skilled players give it up.

Counting card takes all the fun out of gambling. I played like a robot devoid of any emotion. It was boring, and took a lot of discipline to execute. I did it for fun. Good stock trading, IMO, is like counting card. You need to be disciplined and followed a proven strategy as matter of fact. It was fun at one point but I don't think it will be in my RE.

 

[utrecht]

I do a lot of short term stock trading as well as option trading. I don't day trade per se, but I do sometimes buy and sell the same stock in the same day. Its usually related to earnings release or some other catalyst. For example, I really hate BBY stock. Ive made a lot of money shorting it over the past few years. The other day they released earnings and it opened +8% or so. I immediately shorted it and bought it back later that day when it was back to even on the day. It ended the day down about 1% IIRC.

I have no actual evidence to back this up other than personal observation, but I believe if you went against the grain like this on any large stock immediately after a huge move, and held short term (hours to a day or two) you would make money. Most sudden large moves are greatly overdone.

I enjoy the challenge and the adrenaline rush so I'm sure I will continue to trade in retirement with relatively small percentages of my funds.

 

[youbet]

I love a bit of short term trading in my retirement life! I do it in relatively small amounts and lately using simple long positions held for a day to a few weeks. In the past, I did do some covered calls but have gotten away from that.

I have a dozen or so individual companies and commodity etf's that have been interesting to me for years. I read about them and watch prices daily. When I sense an opportunity, I'll sometimes take a position.

So far so good. Always entertaining and generally profitable. BTW, to keep this from being a tax headache, I do it in an IRA account.

 

[cj1717]

The thought of giving the government 28 or 33% of my winnings due to the trades being less than a one year holding period is so offensive to me that I would never allow myself to day trade, even if I thought I knew what I was doing.


Trade in your ROTH IRA account...tax free.

 

[Turboslacker]

How many of those who retired trade (day, short-term) to supplement their income? What have you been your strategy, experience? Your response would be much appreciated.


( I have set aside certain amount for short term trading but never had time to do much with it - I have a day time job. I am wondering if this is something I want to do after RE or just invest the amount elsewhere. )

Active trading is something I look forward to doing for fun when retired.