Yes, we all know what we are supposed to say about day trading – it is a scam, horrible, a sign of the 1990s tech boom, and it is only for naive chumps.
However, there are days when it would be nice pile into a favorite stock or to lock in a big win when it seems to be beaten up.
Now, in the era of whipsawing volatility, computerized trading, flash crashes and sell orders that cost less to perform than it takes to buy a gallon of milk, why should you continue the old buy-and-hold strategy? Well, maybe it seems a bit out of date. The thing is that you do not have to party like it’s 1998, but you can be a little more active around the edges.
We will tell you a few reasons why you should start day trading now:
— It’s easy and cheap. Buy-and-hold strategies made the most sense in the old days, because it could cost hundreds of dollars each time you sold or bought a stock. The thing is that you can now make eight dollar trades in an online brokerage account in seconds.
Mutual funds used to come with exit fees and big sales loads. For pennies you can sell and buy the entire market now, in the form of a total market exchange traded fund. A lot of 401(k) plans provided brokerage windows in their plans, through which you could do this.
— Also, the big boys do it. Institutional investors and hedge funds are using computer programs that jump in at any time when the market summits and pull their profits off the table. So, that is why you can be watching your profits grow steadily and slowly and then whoosh! What happen? Well, they are wiped away.
— Today, you have more information than you used to have. Now you can watch the market in real time. Also, you can see if shares have moved down or up for days in a row, or if there is a big move starting at three o’clock in the afternoon on any given day. By using your knowledge of history, you know very well that the market does not move insistently in any direction for days and days in a row.
Also, you can see if the stock or index you have been selling and buying moves into a different valuation territory.
— You can do it slowly. Day trading does not have to mean sitting at a computer all day selling and buying large lots of shares on minute moves. It can be about buying more on bad days being and be a little bit more aggressive around the edges, and selling more on good days. ‘Value cost averaging’ is one true and tried technique that does in a moderate way.
— You can handle your risks. You can take some money off the table if you have made a killing. However, one of the biggest risks to long-term investors who day trade is this: When it takes off they will be out of the market. Do not forget to buy back in when things look bleak, in order to protect yourself from missing out on the all-important rallies.