Day Trading Making A Comeback?

| October 17, 2008 | 0 Comments

The Down Jones Industrial Average just posted a triple digit move.  I’ve typed this line so many times in the last few months, I feel like a recording.  “Is it live or is it Memorex?”  I don’t know about you but I’m frustrated by the volatility.

That’s when I started thinking (dangerous I know).  There are a number of great investors who make money in these kinds of markets.  What investment strategies do they follow?

We’ll I have two different ways to make money in these volatile markets.

That’s right.  I know of two ways you can make money on your trades. You can profit from all these crazy moves.

I know what you’re thinking – How?

In my experience there’s two ways to trade markets like this.  One’s complex, and one is deceptively simple.  But neither are easy.  And both have risks.  However, if done properly, you can make lots of money using either strategy.

So what do we do?

Let’s start with the tough trading strategy first.  Intraday trading.  I know.  I know.  This trading strategy developed a toxic name after the dot-com blow up.  But, if you’ve got the time to watch the markets, and can develop a feel for the ebb and flow, intraday trading can be extremely profitable.

Here’s two keys to intraday trading.  First, none of the fundamentals matter.  You don’t care about earnings or growth rates or revenue.  You only care about the direction of the stock.  This is obvious.  Logically, a company’s value should never change 5% in a day or a month (on no news).  Yet we’re seeing changes like that every few hours in the markets.

The second key to intraday trading is to follow your gut.  Markets move so quickly you need to jump in and out.  Thinking too much or over- analyzing the details will only hurt your trading.  See the market moving one direction, get in.  When it starts moving the other way, get out! Don’t get attached to your positions.

One way I’d trade intraday is by using an Index ETF (price goes up with the market) and a matching Inverse ETF (price move up as the market goes down).  This is a trading strategy that sounds really easy to implement.  In reality it’s not easy.  You need an iron stomach and an ability to look at your trades dispassionately.

So, what’s the simple way to trade the markets and make money?

I must warn you, this strategy’s very simple in theory but very difficult to implement.  It doesn’t have the excitement of intraday trading.  No need to watch the market every second of every day.

So what’s the second strategy?  Hold onto your hats . . . It’s the Buy and Hold method.

Seriously.

In times like this, market volatility is good for two things.  You can take advantage of it like day traders.  Or you can ignore it.  Which is what long-term buy and hold investors do.

Identify a handful of strong companies with good products and great brand names.  Find those companies with strong financials and possibly paying a dividend.  Then pick a point and BUY.

That’s it.  Walk away.

Don’t look back.  Don’t look at the stock prices every day.  Don’t adjust the holdings.  Don’t do anything.  Just wait for the market to stabilize and valuations to return to normal.  If you picked the right companies, you’ll be sitting pretty.

I know what you’re thinking – what’s so difficult about that?  Trust me. Make your investment.  In no time you’ll be looking at it every day.  You’ll be wanting to adjust it here or there.  You’ll want to tinker with it.  Don’t.

Check back in a few years.  You can thank me then.

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Category: Technical Analysis

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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