So…We're all Swingers Now (?)

Since the 2008 meltdown and the 2010 Flash Crash, we've heard a lot about “Investors” leaving the market, never to return. The story goes that investors feel the game is rigged against them (in favor of Wall Street banks) so they are now stashing their cash in mattresses and $SBUX Trenta Cups.

Meanwhile, Daytraders now complain daily (naturally) that the HFT algo machines are nickel-and-dime-ing (or would that be micro-pennying?) them to death, running their stops, stepping in front of their orders, and essentially ruining the game for them.

I had the pleasure to join a friend last night to discuss – what else? – trading. He's a partner in a proprietary trading firm who's been around the block with over two decades of trading experience under his belt. And if there's anybody who knows how tough it is out there to make money as a daytrader, it's this guy. And he confirms that Traders in his office don't make as much money as they used to. Many don't make any at all!

There's got to be a better way.

Do you Swing?

During our discussion last night, I thought to myself – perhaps all these forces are moving both sides of the time-frame spectrum into the middle, into the realm of Swing Trading?

There is no exact definition of a “swing trade,” though it can loosely be defined as any trade held for more than one trading day, but held with a defined exit in mind – usually within a few days' to a few weeks' time.

Is this where all market participants are headed? To the “middle”?

My gut tells me “yes” for Daytraders, “no” for investors. For Daytraders who scalp, it's become a speed game and you are competing against robots. You can't win. You might win occasionally, but like the black jack table at the local riverboat casino – the house always wins. Commissions, fatigue, and faster computers will edge you out. Eventually.

We need to expand our time frames. Step away from the frenetic up/down ticks of the market. Put on positions – sized properly – that allow us to play for bigger moves that noise won't shake us out of. Use options. More now than ever, options are making more sense to me. You can define your risk no matter how flash crashy your stocks or the market gets.

As far as long term investing goes, I think buy and hold will make a comback someday. It might even be me leading the charge.  My bud Josh Brown (@reformedbroker) posted this graph recently on his blog. If this visual doesn't get you excited about the inevitable next leg up which will have the possibility to create generational wealth, then I don't know what will.