Day Trading Believers Teach High-Risk Investing

(The Washington Post) — As president of a Paris-based consulting firm, Chuck Riviere found himself on the road in Europe three of every four workdays, pursuing his passion for trading stocks from hotel rooms, airports and train stations using a laptop computer. Now he trades full time while running the Falls Church office of All-Tech Investments, Inc.

These days he rarely travels beyond two jumbo computers, keying on rows of colored numbers flitting across his screen like a child mesmerized by a favorite video game.

When the timing is right, Riviere pounces, clicking on his mouse, buying Microsoft, Corp., selling short Dell computer Corp., then, in abrupt reversal, unloading the Microsoft, covering the short on Dell and going short on 3Com faster than you can say, "if it’s Tuesday, this must be Belgium." Shorting is the practice of Selling a stock the trader doesn’t own in the expectation that the trader will be able to buy it back at a lower price and pocket the difference.

What Riviere does and teaches others to do is the art of day trading -buying and selling a security in one day. It can be a fast way to make money that often invites unflattering comparisons to craps and other games of chance.

"This is not gambling," Riviere is quick to interject."Gambling is pure luck. This is an art, the ability to recognize a trend and react to it, and then get out."

"Our average trader is in and out of stocks very quickly," said Riviere, 55, a native of Lyon, France, who buys and sells stocks along with about a dozen other day traders at All-Tech’s office for fractions of a point. The thousand-share lots they turn around — often several times a day — can add up to big profits.

All-Tech is one of dozens of firms throughout the country -there are four in the Washington metro area -that teach students how to trade on specialized computer systems featuring up-to-the-second quotes and state-of-the-art analysis.

While Riviere is jumping in and out of stocks at a breakneck pace, Sal Giamarese coaches newcomers in the upstairs office in a simulated environment known as "paper trading," in which trades can be executed and tracked as if money had been put down, without the trader incurring any risk or reward. Giamarese, 34, learned the ropes as a runner on the floor of the American Stock Exchange before becoming a full-time day trader averaging, he says, $200,000 a year.

Giamarese’s newest students include Pete Holt, a retired managed care specialist who lives in Alexandria; Robert Sastro, an Indonesian-born architect; and Elka Terzieva and Tosho Nedialkov, a husband-and-wife team who made millions trading currency during the post-communist days in their native Bulgaria. All were attracted to the course for the potential it offers to make money quickly. Or lose it quickly. Day trading is decidedly not for conservative investors. Or most other people, for that matter.

Riviere makes no bones about the downside of the business, readily volunteering information about the lawyer who became ill worrying about how to explain to his wife the $109,000 he had dropped trading.

James E. Hollis, president of the Investment Counselors Association of America, warned: "Day trading is something I don’t trust. I wouldn’t want to invest my money in it. And I wouldn’t suggest that the average investor do it -or spend $3,000 for a course."

Riviere, who claims to have made as much as $14,000 a day and lost as much as $3,000 while averaging $800 or $900 in daily winnings, acknowledges the risks: "You have days when you make a thousand bucks and days when you blow it all by being stupid."

The trick, he said, is to quickly abort trades that move against you while allowing your winning positions to run. "It’s the overall track record that counts," he said.

The difference between a successful trader and a loser is the ability to limit losses."

Students at the Falls Church office plunk down their $3,000 for a training program (a longer, intensive program at company headquarters in Montvale, N.J., costs $5,000) that includes a one-day orientation session, a weekend "boot camp" and a week of "paper trading." The moment of truth comes when it’s time to put personal funds to work. Riviere suggests trading in 1,000-share blocks using $100,000 to start.

Day trading has mushroomed in popularity because of both the increasing availability to technology and pressure from the Securities and Exchange Commission on Nasdaq market makers to narrow their trading spreads on stocks they buy and sell.

The old system enabled small traders to buy stocks only at higher "offer" prices and sell them at lower "bid" prices. Market makers never posted better bids or offers and rarely filled orders placed between spreads. Small traders who sought better prices tended to get their orders filled only when the price of a stock moved up or down to meet their bid or ask. Meanwhile, the big firms reaped huge profits by trading thousands of times a day for a fraction of a point.

In 1996, the SEC determined that the big market makers used spreads to gouge the public. This triggered initiatives such as the Small Order Execution System to ensure the execution of blocks of stock up to 1,000 shares. It also led to a class action lawsuit that the market makers settled for $1 billion in December.

These developments, along with new breakthroughs in technology, allowed small traders to go toe to toe with Wall Street behemoths, including Goldman Sachs and Co. and Merrill Lynch.

Now, using point-and-click technology, small traders such as Terzeieva, Nedialkov, Sastro and Holt can post their own bids and offer prices along with the big players. The net effect is to narrow the spreads of Nasdaq-listed stocks — dramatically in some cases —saving smaller investors hundreds of millions of dollars.

Before new traders are allowed to put their money to work at All-Tech, they must undergo at least a week of instruction and paper trading.

Terzieva, 51, who was an advertising executive in Bulgaria, relied on traditional candlestick charts to generate buy and sell signals on Microsoft during her trial period, remaining so focused on her computer screen that she didn’t even break for lunch. In two days, she chalked up more than $6,000 in paper profits.

But her husband, Nedialkov, 33, a graduate student in physics at George Washington University,lost $700 on paper. Sastro and Holt also compiled a string of losing trades. But by the end of the weeklong session, all had opened trading accounts.

Sastro, 40, plans to paper-trade for three to six months before putting up his own money. Holt and Nedliakov, too, want to develop trading techniques that work before they commit money. All seemed impressed by the system.

"It definitely works," Nedlakov said. "Terzieva has vowed to use her anticipated winning to buy a new yellow Volkswagen Beatle."

Giamarese said that anyone with common sense and discipline can make money day trading.

"If they follow the rules, they’ll succeed," he said. "It’s just like golf. If you’re careful about how you place your feet, how you lift the club and follow through, you’ll stand a better chance of hitting the ball straight than hooking it. The same principle applies to day trading."

Day Trading: 10 Rules to Live (or Die) By

Here are some day-trading tips offered by Chuck Riviere, owner of All-Tech Investments Inc., which teaches would be investors how to become day traders from its Falls Church office.

1. Never initiate a trade before 10 a.m.
2. Watch the general direction of the markets.
3. Trade with the trend: the trend is your friend.
4. Watch the movement of key market makers; a market maker buys and sells lots of securities on over-the-counter markets.
5. It helps if the stock you’re trading is among the most active, or on the biggest gainers or losers list.
6. If not on those lists, determine what’s the volume and where are the key market makers.
7. Determine whether other stocks in the same sector are trading targets.
8. Initiate trades on other stocks in the same sector
9. If you’re riding the trend, never leave your terminal.
10. Think about taking profits between 3:34 and 4 p.m.