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JANE BRYANT QUINN

Most day traders haven't a clue what they're doing, even if they're making money. So says investment consultant Ronald Johnson of Palm Harbor, Fla.

Johnson studied a random sample of trading records in a Watertown, Mass. branch office of All-Tech Investment. The study was done for the Massachusetts Securities Division, a state law enforcement agency. All-Tech, with 25 offices nationwide, was one of the earliest public day-trading firms.

Johnson was appalled by what he found. Most of the traders were not only losing money by his calculations, they were likely to lose every dime they put up, due to the way they were handling their accounts. Their best hope was to quit before they zeroed out.

Massachusetts closed that office last year, for violations of securities laws. All-Tech settled the case with no admissions, but agreed to stay out of the state for two years and replace certain customer funds.

All-Tech's president, Harvey Houtkin, blames the problems on a single bad manager. He dismisses Johnson's study as "a piece of trash, inaccurate."

Johnson believes that, as other studies of day trading are done, his own results will turn out to be typical.

Day trading is the ultimate test of market timing. Career speculators (both experienced traders and wannabes) watch their computer screens all day, following a small number of stocks. They nip in and out of the market, in hopes of nailing small, quick gains.

Some hold positions for a few hours at most. Others hold for a few days.

Johnson picked 30 accounts at random. He looked at how often the customers traded, what they paid in expenses, and their net results. (Two of the customers had multiple accounts. For part of his analysis, Johnson used one account per customer, or 26 in all.) Here's what he found:

? Trading costs were high. The average account paid 56 percent of its value annually, in fees, commissions and margin interest (that's interest on money you borrow to increase the size of your account).

Put another way, customers needed to make 56 percent on their money, every year, just to break even. Did those traders even know?

? Of the 26 customers indulging in short-term transactions, 18 lost money. That's 70 percent. Even worse, their trading methods were likely to lead to a total loss.

A typical mistake, Johnson says, was putting too large a fraction of their capital into a single trade. Given their won-loss records, the size of their bets would eventually wipe them out. Professional traders rarely risk more than 3 percent of their capital on a single throw, he says.

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