The Chartered Financial Analyst is one of the most sought-after and well-recognized credentials in the financial community. The program is notorious for its high attrition rates, level of difficulty, and time commitment necessary to successfully pass and earn the coveted designation of CFA. However, for anyone looking to begin a career day trading, the CFA program's scientific approach to investment analysis may seem largely at odds with the fast-paced world of speculation. While the CFA is by no means necessary for a career in day trading, the wealth of information learned through the CFA program will not hinder a potential day trader, and it can serve as an additional tool in their arsenal to tackle the challenges of navigating markets.

The CFA Curriculum and Careers

The CFA program is known for its academic rigor and thorough presentation of the tools and techniques necessary to become a financial analyst. There are three levels of the CFA exam that must be completed, along with four years of applicable work experience in order to earn the designation of Chartered Financial Analyst. The breakdown of the three CFA exam levels are as follows:

Topic Area

Level I

Level II

Level III

Ethical and Professional Standards

15

10-15

10-15

Quantitative Methods

12

5-10

0

Economics

10

5-10

5-10

Financial Reporting and Analysis

15

10-15

0

Corporate Finance

10

5-10

0

Equity Investments

11

10-15

10-15

Fixed Income

11

10-15

15-20

Derivatives

6

5-10

5-10

Alternative Investments

6

5-10

5-10

Portfolio Management and Wealth Planning

6

5-15

35-40

Total

100

100

100

Source: CFA Institute

As you can see, the Level I curriculum covers a fairly equal weight of topics with an emphasis on ethics (which is throughout all three levels) and financial reporting and analysis (FRA).

FRA in Level I is focused on learning the terms, techniques, and analysis of financial statements as reported by a company. It lays the groundwork for equity analysis, forecasts, and portfolio management in the following levels. While Level I covers a broad array of financial topics, Level II expands upon the major topics of Level I with an emphasis on the valuation of assets.

Finally, Level III consists of applying all that was covered in the last two levels to successfully manage a portfolio consisting of multiple asset classes. This emphasis on portfolio management is evident by the fact that the most popular career choice of CFA charter holders is that of portfolio manager (22%), with research analyst coming in second (15%). It is worth noting that traders compromise of just 3% of all charter holders.

Day Trading Principles and Techniques

Day trading is speculative in nature and occupies the shortest time frame when compared to swing traders and investors. Since day traders rarely (if ever) hold their positions overnight, they must have a thorough understanding of price and volume data and technical analysis. Because of technical analysis’ all-encompassing nature, day traders can easily transition between asset classes, as long as these assets adhere to the overarching laws of supply and demand. Thus, day traders can feel pretty comfortable trading equities, derivatives, and forex. Some common strategies employed by day traders include:

  • Candlesticks: Day traders usually employ candlestick charting techniques in their analysis within ranges between 30 seconds to five minutes. Furthermore, day traders generally follow candlestick patterns such as dojis and hammers (signaling a trend reversals), “piercing” patterns, and “engulfing” patterns.  
  • Moving Averages: Depending on the trader’s style, there can be several moving averages employed to determine the trend of a stock. A common usage of both simple and exponential moving averages are their crossovers, for both buy and sell signals and using the moving averages as support and resistance guidelines.  
  • Indicators and Oscillators: The moving average convergence divergence (MACD), Bollinger Bands and the relative strength index (RSI) are common indicators that can lead to buy and sell signals.
  • Patterns and Support and Resistance: Day traders may employ any of the various types of patterns common in technical analysis. Common patterns used include the head and shoulders, cups and handles, flags/pennants, and double and triple tops and bottoms. Support and resistance can be calculated in a number of ways, but the most commonly used methods are Fibonacci retracements and pivot points.

The CFA and Day Trading

As day traders utilize technical analysis almost exclusively in lieu of the fundamentals, there is neither the time to ascertain the “why” behind an asset’s movement within such short time spans, nor is there a need, as technical analysis emphasizes that all information about the asset is already reflected in its price and volume. The CFA curriculum follows a contrasting philosophy, with a heavy emphasis on diligent fundamental research geared towards portfolio management – a world in which trading such short time spans is neither encouraged nor generally accepted.

Moreover, all the information presented in the CFA materials has been thoroughly researched or validated and developed through empirical means. The CFA curriculum consists of hard science and calculations that focus on objective data. Technical analysis is subjective in nature and controversial in its validity. Although this is not to say that it is ineffective. Technical analysis can be viewed as an art, as opposed to the CFA curriculum’s science.

Therefore, the day trader would be better served to learn the nuances of technical analysis straight from specialized sources that deal in the matter and actually day trading (or sim trading), as opposed to trying to hone their craft through the CFA materials. In fact, the CFA devotes a very small (and basic) section to technical analysis in Level I only.

Furthermore, there are certain crucial concepts that a day trader must understand that can only be learned through actual day trades, or through resources dedicated to these concepts. The CFAI curriculum, while incredibly thorough in its material, simply does not have time to include all the common concepts that day traders may encounter on a daily basis, such as stock scalping, short squeezes, high-frequency finance and the properties of trading algorithms, option pin risks and volatility around option expiration dates, level II analysis, and general order placements.

Most importantly, the CFA requires a recommended commitment of 300 hours of studying per level to pass each exam, as well as four years of applicable work experience. If you are committed to becoming a successful day trader, these 900+ total hours, along with the years of experience, would be better served actually day trading and studying the materials directly applicable to day trading as opposed to the CFA exam, especially during the initial stages of one's career.

The Benefit of a CFA for Day Traders

Although day traders may very well be on the opposite end of the finance spectrum from portfolio managers and analysts, the CFA does contain a wealth of information about the financial topics, and this extra information can never be a hindrance. Any trader that wishes to be a student of the markets can find incredible value in the CFA materials that can be immediately added to their trading repertoire or as a reference point to guide their decision making.

For instance, if an earnings report was released in the pre-market, the day trader can use any of the FRA techniques from the CFA to make sense of how this will play out for the stock during the day. Furthermore, successful completion of the CFA exams can showcase a trader’s knowledge of a broad array of financial concepts that can impress future employers or mentors.

Traders employed in professional firms may also have to use economics, equity valuation, and fixed income concepts to make sense of the orders they receive from the portfolio management teams. The tools from the CFA curriculum can also be used by day traders to conduct diligent equity research for investments that span a longer time period, and even the most die-hard market technician may find concepts that align with their beliefs, such as the CFA’s coverage of behavioral finance.

The Bottom Line

The CFA program is focused on conducting diligent research on a variety of asset classes, which is reflected by the majority of charter holders pursuing careers in portfolio management or research positions. By contrast, day traders have little time to conduct research, nor are they concerned with the fundamentals behind an asset’s movement. Therefore, the CFA program may seem slow and rigid compared to the fast-paced world of charts and chaos that the day trader thrives in. However, because of the CFA's thorough presentation of financial topics, it can be beneficial to day traders to pursue the CFA Charter, especially for future career transitions or to simply acquire more knowledge about the markets.