To be fair it was not my idea but you can only bang your head against the wall for so long before it clicks that what you are doing is not the path to your desired destination. More specifically, I analyzed last year’s results (2017) and realized I was getting hammered on my day trades but did exceptionally well on other trades (pairs, swings, and even options). I had this nagging suspicion around September that it was becoming obvious after a rough summer of day trading when volume essentially dries up (as does trading ranges).

Naturally, being the junky that I am, I would find some small priced news plays to day trade and drill down on the 5 minute chart. Sure sometimes I would capture great moves or even scalp some futures like oil or S&P500 for a few bucks. I just finally gave up after realizing that when it was all said and done I would have been profitable if my commission was $1 less. I got to thinking that retail commission is set by the market and here is how I think it plays out in my head…

Traders around the world find the same successful strategy. It slowly becomes more evident as more and more players utilize the same strategy which causes some to start to front run it in order to make the gains larger. This actually erodes the strategy in the long-run as the signal becomes less clear. Firms lobby their brokers for lower commission as their once star strategy now appears lack luster. Brokers knowing the firms track record and volume oblige and reduce ‘special’ players’ commission structure.

This strategy is eventually found by the likes of you and me but we cannot compete because the edge is eroded down to the bone where the only edge left is the discount on the commission. Now think of how much computing power is out there and how smart the high frequency traders are and the volume they do. They must be playing nickels to trade where we are paying $2-3. There is no way we can compete. If we find an edge they’ve already negotiated it. If not, they will soon find it, front run it, erode it, etc.

Long story short, the best decision I ever made was to move to a time frame(s) where the average trade was 2x my commission.

I found this to be about 2 hour plus timeframes and then this was later validated by my swing trading performance in comparison to my day trading (5 minute chart) performance. If you are not successful yet I encourage you to do the same thought experiment and analysis of your own trades. Holding overnight is scary at first. Once you build some profits ‘it aint no thang’ and the fear subsides. At that point the day trading ‘feels’ risky and like a waste of effort and energy. Just try it for a month.

Update: I have recently become enamored with alternate chart types. Specifically tick based charts and volume based charts. These have tremendous advantages as the middle of the day quiet period and the overnight ranges are condensed and create smoother signals and patterns on almost every indicator and strategy I use! I still apply the same rule of 2x commission otherwise I have the chart settings too low.