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Some words of wisdom from briefing.com "DAYTRADING: The market is overvalued... Dow poised to open 40 pts lower this morning... FOMC meeting being held today. To many daytraders, those words mean absolutely nothing, particularly the guy/gal who is wielding $20,000 in buying-power, attempting to make $500 or $600 a day. To this type of daytrader, all that other stuff is extraneous, all he wants to know is: where's the action and how much upside/downside is left? It's a fast game and the interstate is littered with roadkill (amateurs who join the party late or stay after the lights have been turned off). However, those early rookie mistakes are necessary to help develop a strategy. One of the early lessons is that there is a huge difference between learning on paper and having your own money at risk. The problem that many neophytes have, however, is that they start with more capital at risk than they should, thinking that the money is simply falling from the trees. As a result, when a trade goes against them, they panic and do all the wrong things. If just getting into these game, start off small. You will quickly learn that any loss hurts (even if its only 50 bucks) and that the same lessons can be learned from a $2000 trade as a $10,000 trade. After a while, you will begin to get a feel for how these stocks move. Probably one of the first things that will be made clear to you as that when it comes to momentum plays, traders are not buying the company for its fundamentals. They simply want to know if the news is compelling enough to pull others into the stock. These guys are not looking to tuck this baby away in their 401-K, they are simply trying to squeeze a few percentage points out of the stock over the course of a day. Every now and then, those few percentage points turn into a 40% or 50% pop. To them, long-term is tomorrow afternoon. The biggest mistake that new daytraders make is that they hold these momentum plays well after the upward move has been made. Even after the stock has given back 25%-30% of its gains, these guys are still hoping for a rebound. Give it up buddy, its not going to happen, at least not anytime soon. While the fundamentals may be strong, the money that moved the stock is fickle -- it is always looking for a better looking date. We're not suggesting that you dump the stock 10 minutes later (because much of the upside can be missed this way), we're saying don't be one of the guys sitting at the table 3 days after the initial move waiting for institutions to come in and rescue you. In most cases, it's not going to happen, especially if the stock trades under $7". |
