By Doug Campbell – The Business Journal
WINSTON-SALEM -- It is 9:29 a.m. and Troy Epperson is ready to begin the work day.
He's got bags of oatmeal raisin cookies and snack crackers, a bottle of vitamins, a can of Mello Yello and an 8-by-11-inch notepad with the ticker symbols of about 30 stocks he'll be following during the next 6 1/2 hours.
Epperson, is a day trader, seated in a plush leather chair at one of 24 state-of-the-art work stations in Carlin Financial Group's Winston-Salem office. Mounted televisions are tuned to financial news channels and projected charts display volume and activity in various stock indexes.
Day trading is the practice of buying and selling stocks at breakneck pace. Most such traders never hold a stock beyond the closing bell. The Securities and Exchange Commission has called it highly risky, and even the principals at this operation say as many as seven out of 10 day traders lose money.
But it is not all like what you might think. Though it's true traders have only passing knowledge of the company's business in whose stock they madly swap, there is a scientific method to it all. And though it may appear to be fraught with risk, the managers who recently opened the first day-trading office in the Triad are intent on minimizing the peril.
Managers Richard Hall, George Taylor and Dan Gentry have a system. They don't want anybody on their training floor who isn't financially backed -- at least $50,000 -- heavily trained and disciplined. That's how they will make their money: riding their traders successes.
"Be absolutely certain you know what every button does before you go live, because it is real money," Hall cautioned a soon-to-be day trader over the phone. Then he turned to the Carlin trading floor and said: "It's a trainable exercise, if you can reel in the emotions and have the discipline to do what you say you're going to do."
In a parallel project, the Carlin partners have invested in a separate company that has hired a team of about 10 traders who make equity bets. These traders sit side-by-side with individual investors on Carlin's floor.
Epperson is one of the hired guns, and his story illustrates a lot about the lure of day-trading -- and the risks.
Shorting, selling, watching
The clock ticks to 9:30 a.m. and the market opens. Epperson at the moment has ties to only a single stock, appliance maker Whirlpool, under the symbol WHR.
He is "shorting" Whirlpool at 68 11/16 and wants the stock to drop about 2 points before buying it. Shorting is the practice of selling a security you don't own with the idea that you can buy it later at a lower price.
There's a market "gap down" this morning, meaning the indexes are immediately falling. Epperson said he won't make a move for at least 20 minutes; what happens during the early moments of trading is seldom indicative of the rest of the day.
Whirlpool, for example, is slipping, just as Epperson hoped it would. But it is so soon in the day that he isn't getting excited yet. It still has at least 1.5 points to go before Epperson hits his target price.
"Most mistakes are made in the first 30 minutes," Epperson said.
His patience is newly acquired. Two years ago, Epperson ran his own construction contracting business. He got burned out and started dabbling in the market, making trades on futures at home.
In his first six months, Epperson lost $30,000. He decided he needed some training and, maybe, a way to learn the tricks of this trade without jeopardizing his own dwindling savings.
First he started with a Charlotte operation, then he hooked up with the managers who later opened the Carlin office in Winston-Salem. He gets a percentage of the group's gains, plus a tidy annual salary. Pretty soon, Epperson thinks he will be ready to start throwing his own cash into the market again. But not yet. After two years of full-time trading, only in the past few months has he started making money.
"When I'd lose $5,000 of my own money, I'm freaking," Epperson said. "It causes you to trade scared."
Check emotions at the door
Fear, or even a trace of emotion, is the last thing a trader needs on the brain. The stocks don't know who owns them, and Epperson and his peers must not let their irrational feelings distract them from the virtual science of anticipating sharp price swings.
On his monitor Epperson is actively keeping track of at least a half dozen stocks. Every morning, the traders meet and peruse data produced by a software application that hunts for trends that may lead to some sort of pattern. From that pattern, traders at Carlin try to predict which way the stock will go, and buy or sell accordingly.
From the morning meeting and his ongoing research, Epperson's notepad today contains the tickers for about 30 stocks broken down into three columns -- long, watch and short -- plus the entry point price of each equity.
Most of his are under the "long" column. These are stocks Epperson aims to get a position on early in the day and hold for a few hours or as long as it takes to make money. But he occasionally engages in so-called "scalping," in which traders move in and out of stocks in less than 30 seconds as they try to ride the momentum.
Around him, other traders begin calling out stocks. "OMC," a trader from a back row shouts. Epperson instantly pecks at his keyboard and calls up the chart for OMC. "Looks like a long," he says, noting the computer tells him buyers and sellers are lining up.
OMC stands for Omnicom Group. "I think this company is in the media," Epperson said. "I'm not into fundamentals at all."
This was not one of the equities Epperson had planned on entering. Based on what he sees on the chart, he is reluctant to make a scalping play, as the swing may take longer than a few seconds to finish.
Conservative day-trading
Epperson makes 30 to 40 trades a day and on a good day can make a few thousand dollars. That's a lot of money, and it's indicative of the volume and leverage that hired traders like Epperson wield in working with larger pools of capital than the average individual day-trader.
Much of what Epperson does here technically could be done at home with a conventional personal computer and a modem. The advantages of trading at Carlin are in the flow of information on the trading floor, the technology that allows almost instant order execution and such amenities as power-backup systems.
The sharing of information includes the stock callouts by other traders. It also includes a squawk box linked to the Nasdaq trading floor. From this, the Carlin traders can hear a voice announcing things like "new low." The voice sounds in Winston-Salem seconds before most others can get that information, and it can make a big difference in getting in on a hot stock.
Another example: The traders generally know the holdings of others on the floor. Epperson sometimes may decide not to make a trade, or to make one sooner, because he knows a fellow trader is ready to make a move in large enough volume that it may affect the share price.
Epperson usually starts his work day at about 7 a.m., reviewing charts and discussing strategy with others. The morning calm contrasts with the high-energy mid-day, when voices get raised and sometimes tempers flare.
"Some days, it's chaotic," Epperson said. "You get used to it, but it took me three to five months until this wasn't fatiguing. Most of these guys don't even take lunch."
All in a day's work
By the end of the day, things have gone sour on WHR. The stock rose to 69-5/8, where Epperson had placed a stop order which automatically forced him to take a loss of about $468.
On the other hand, the rest of the day went well. Despite a choppy market -- the Dow Jones rose and fell before landing up 1.9 points -- Epperson's trades netted $1,600, or $1,300 after commissions.
It's the small but steady triumphs like these that make Epperson think he's found the right career. Soon, he may start doing it on his own again.
"I'm going to go back to my own money over time, but I want to be so well capitalized that one losing day or month isn't going to ruin me," Epperson said. "The guys who are successful always have a plan."