So You Want to Daytrade

A lot of readers might look upon the life of a commodity daytrader with envy. After all, the job offers independence, self-made hours and apparently limitless success.

Unfortunately, some are trying to prey on people with such a rosy view of this career. Given that it's my life and my job, I'm going to use this column -- and this video -- to set you straight and hopefully prevent you from making some mistakes.

Almost every day, as I'm watching late-night cable with my diet soda and bag of Pepperidge Farm goldfish, I'll often see an infomercial for a "foolproof" daytrading system being sold by some ex-trader that's being demonstrated at the local Marriott on Sunday. For right now, these systems seem to concentrate on the forex (short for "foreign exchange") currency markets, but I expect the offers will soon include other commodities, relying on the tremendous growth still taking place in that space.

A Reality Check

Oh, it's everyone's dream: quitting your job, dumping the commute, working from home, making your own hours and buying that boat. Now, I'm not here to rain on anyone's parade or to tell you not to chase your dream, but a little reality about daytrading systems and the life of a daytrader might be useful right about now.

Let me start by saying that I haven't seen most of the systems that are being sold out there. The ones I have seen are based on very simple technical indicators and rely on momentum to generate buy and sell signals. Markets need to move in waves, as we all know, and a large number of technical indicators try to measure when large waves are about to be interrupted by smaller, opposite-flowing waves. Literally hundreds of such indicators exist.

The $495 software systems for sale attempt to mechanize two or three of these indicators into a trading system and make it as simple as possible: Choose your time frame (how fast do you want to make money?), your trading level (how much do you want to risk per trade?), and off you go. A red light means sell, and a green light means buy.