Day traders were put on the same level as tax evaders and adulterers it seemed in the 1990’s. But unlike not paying your tax bill or cheating on your spouse, there is nothing inherently wrong with buying and selling a stock or another investment vehicle in one day.
If you are new to investing, you should know there is a difference between people who take advantage of the tiny movements in the stock market for a living and people who like to sometimes take a profit by trading within market trading hours using their discount brokerage firm accounts. Market volatility has created an opportunity that some can’t ignore.
New investors who want to get started investing in the stock market should not be dismayed by the ups and downs of the stock market. Here are some easy dos and don’ts to follow when getting started as an investor in the stock market:
No. 1: Do open a discount brokerage firm with TD Ameritrade, Scottrade, E-Trade or other firm. You will not have to pay very much to buy or sell shares. And you will have access to your account during trading hours.
No. 2: Do research using all of the free, available Internet sites available such as Yahoo finance. Check out the highs and lows for the day. Visit nasdaq.com to see which stocks are selling at an all-time high or low.
No. 3: Do decide which stocks you want to have as a “long” position, which means you plan to keep it for a few years versus the stocks you want to keep for a short amount of time. You could have a stock for only a few hours or a day, but that does not make you a real “Day trader.” It just means you had a stock that shot up in value very quickly and you wanted to take your profits while you had the chance.
No. 4: Do diversify your portfolio. Jim Kramer, the host of “Mad Money” often talks about making sure you don’t own too many stocks that are similar. For example, it’s great to own pharmaceutical companies but don’t own five drug companies and no bank stocks, retail stocks or oil stocks.
No. 5: Don’t waste your time investing less than $500 to $1,000 at one time because it doesn’t make mathematical sense with the fees you have to pay every time you buy or sell.
No. 6: Don’t just invest in speculative stocks. Look for ones that pay a dividend and plan to have them as part of your long position. Dividends means the company made a profit and wants to share it with you – the shareholder. Isn’t that nice?
No. 7: Don’t visit too many Internet financial chat rooms filled with day traders and millionaire wannabees. But if you do, keep in money there are a lot of “pumpers” who just want to “pump and dump” a stock. They want the value to go up so they can sell and make a quick profit. On the other side, there are “bashers” who want to run a stock down into the ground because they have a “short” position against the sock, and benefit from its misery.
No. 8: Don’t share your stock tips with friends or family and don’t listen to their tips. The thing about the stock market is it’s unpredictable. You don’t want to lose a friend over a bad tip.
No. 9: Do research the history of a stock before purchasing it. Look to see if you are buying it at a low point. The only downside to a stock being at an all-time low is the risk of bankruptcy. Being so low can be a sign of a damaged stock that has no hope for recovery. Or it could be perfect timing.
No. 10: Do buy low and sell high. It’s the most simple, easy, fool-proof method of becoming wealthy in the stock market. The only real thing you need on your side is time. And most day traders just don’t take time. Successful investors dollar cost average into a stock by buying shares every month so the price averages out to something better than if you bought all at once. I still think it’s best to dollar cost, but look for “opportunities” when the stock is a real value (shares are cheap).