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positions. They do this kind of defensive thinking much better than intermediate- and longer-term investors, who think they don't really need to bother with it. |
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But what about day traders holding positions longer, rather than the knee-jerk reaction to sell when it goes down an eighth or a quarter? In other words, have active traders gone overboard when it comes to quickly exiting positions? This question, of course, goes to the heart of the whole method of grinding out fractional gains. |
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It all depends. If there is a lot of money on the line and say, 500 or 1000 shares, obviously to preserve capital, active traders are forced to exit positions quickly when their stock drops a fractional amount. They can't risk losing a chunk of their capital. If they have 1000 shares and the stock goes down a quarter point, they are down $250 plus commission costs. This, as every trader knows all too well, can happen very fast. It is the best argument for not trading in larger share lots until you become very experienced. But let's say they're only trading in lots of 100 or 200 shares. Then if the stock drops a quarter point and it only is worth $25, they will not feel so desperate to get out of their position. They can watch the stock a while, and give it a chance to come back to at least where they bought it. |
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I understand that it is tough to make much money when that quarter point doesn't mean more than $25. But if the object of the game is to preserve capital and carve out fractional gains, what's the matter with carving out a few hundred dollars per day with far less risk? |
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I will never end up a scalper because it simply is not compatible with my personality. And there is no compelling reason that I can see to try and fight my personality and natural trading approach. I have concluded the risk-reward ratio is not favorable for me to deal with the stress of scalping. Swing trading makes somewhat more sense to me but is still quite nerve-wracking, and position trading makes more sense still. But my own preference is for what most would label the intermediate terma few weeks to a few months. Some call this "speculative" trading, viewing anything short of holding for the long-term as too risky. But speculation that is informed is clearly in a different category than wild gambling. |
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For example, if CMGI has one of its "incubator" Internet companies coming to market with an initial public offering, I know that the parent stock will rise when the new company becomes public. This is not really any riskit will go up when one of its companies |
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