GBS Ponders Day Traders' Extinction

In the end, what will do in the day-trading masses? Idle hands, Gary B. Smith says.
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Things GBS has yet to figure out:

How a car works (I know it needs gas, and there's something with oil, right?)

HVAC (The HVAC guy said I needed to change the filter in my furnace. My response: "Huh?")

Soccer (OK, if

your

kids don't play, do

you

understand it?)

Carpentry (I love watching

Norm Abrams

on

The Yankee Workshop

. In my mind, he is way smarter than

Stephen Hawking

!)

Cher's

comeback

Sadly, that's only the tip of the iceberg. Forget about that older/wiser stuff -- knowledge-wise, I think I peaked at about 22.

So when I finally do figure something out, it's a big deal. And what, pray tell, is this big deal? It's how to rotate my tires! Oh, sorry, strike that. Still working on that topic.

No, the big deal I'm talking about is what will mark the downfall of the day trading cowboys. Yeah, I know, it doesn't exactly rank with what caused the dinosaurs' extinction, but still, it's a pretty interesting area.

And by broaching this topic, this doesn't assume I think day traders

should

depart our fair planet. Frankly, I have some very good friends who make their living this way, so I'm certainly not wishing the pox on them. Only warning them, I guess.

Anyway, the answer struck me this morning as I was thinking about my own dull-of-late trading: idle hands! Yeah, I don't know why I didn't think of it earlier, but shoot, it's the devil's best weapon.

Puzzled? Skeptical? OK, but hear me out. I've talked with and known a lot of day traders. Very few are patient, methodical students of trading. And

very

few day traders in the past six months fall into that category.

No, for better or worse, the typical daytrader needs action. He (and yeah, 99% of them are male) wants action. He's hooked on action. He's addicted to action!

And the Internet stocks have been there for him, with high-testosterone, juiced-up trading. That's what an

eBay

(EBAY) - Get Report

or

VerticalNet

(VERT)

will give you. Great at playing

Asteroids

growing up? Brother, you'll love day trading!

And my hat is off to day traders, because it's been working like a charm. Just get 10 or 20 ECN jockeys in a room and watch the dollars fly.

But what if things start slowing down? Or even worse, slowing down

and

going down? I mean, picture this scenario: Internet volatility dries up, and the

iVillages

(IVIL)

of the world do nothing but slowly, painfully crawl lower.

Forget the fact that most day traders never go short, because that's the least of their worries. The big concern? No juice! No action! Nothing moving! Nothing shaking! Geez, it'd be like the dull '70s all over again.

But most nonday traders could deal with that. They'd either start to go short, move to cash or just sit and wait it out.

Ah, but day traders? They can't "do nothing." No, they were lured into the casino world of fast-paced day trading action, and if they've survived more than a few months, they're not only used to the rush, they probably need the rush.

But take away that rush, that high, that jolt from day traders, and what do you have? You have addicts looking for a fix. Traders without trades to make. Gunslingers with no bullets.

But they won't go quietly. No, they'll start looking for trades where there are none. They'll start seeing things that just aren't there. They'll churn and churn and churn until, in the end, the only person happy is their broker.

And this could go on month after vicious month, until the last daytrader alive has to star as

Charlton Heston

in

The Omega Man

.

You're still skeptical, aren't you? Well, brother, I know of what I speak, because I have day trading blood in me! Remember, I daytraded for a few months myself and I loved the day trading high. It didn't take me long to get hooked, and if I hadn't done a solo intervention, I'd be a goner right now. Some washed-up trading junkie begging for IPOs on the village corner.

Need further evidence? OK, look at these three near-trades, and remember, as I mentioned earlier, that the past few days have been dullsville for me. So, if you can extrapolate for a minute, I'm in a similar situation to what all those day traders might go through: a trading jockey, looking for a fast 3-year-old to ride. The only problem?

Old Paint

is the only horse in the stable.

Yeah, these are three trades I'd have taken in the past. Three "idle hands" trades that I almost took ... because I didn't have anything else to do!

Yeah, every one of them is U-G-L-Y! A sane person has to say, "What were you thinking?" But, I'm telling you, that's what trading junkies do. They don't sit on their hands, stalking the next big winner. No, they go out and make things happen! And, as you can see here, things do happen. Bad things.

I didn't make these trades, saving myself a bunch of dough. But, man, I thought about them long and hard. Yep, it was only with years of discipline (read: having actually done idiotic trades like this too many times to count) that I was able to pull back and not hit the enter key.

But many day traders don't have that discipline. They won't pull back and wait -- that's just not what they do! No, they'll plow ahead into trade after terrible trade. And they'll dig a deep hole that will just put even more pressure on them to "make things happen." But nothing will happen until they're finally tapped out. And that, my friends, will mark the sad end of the day traders.

Idle hands, baby. Idle hands. I'm telling you, that's what will do it.

Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. At time of publication he had no positions in the stocks mentioned, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. This column, Technician's Take, appears every Monday. Smith also writes Charted Territory, which appears every Wednesday, and TSC Technical Forum, which runs Saturdays and Sundays. While he cannot provide investment advice or recommendations, he welcomes your feedback at

gbsmith@ibm.net.