Sunday, March 15, 2009

The only certainty is volatility. Get into short-term trading.

As you already know, the stock market in recent years has been a rollercoaster ride. If you started investing in blue chip stocks a few years ago, then you are probably among the millions who have been burned by the downturn that started in October of 2007 . The Dow went from an all-time high of 14,000+ to a 12-year low of 6,500 in less than 12 months. This was one of the greatest amount of wealth ever lost in U.S. history. In fact, over 25% of the U.S "millionaires club" were revoked of their membership cards and kicked to the curb.
So, what does this mean for the next 12 months? Well, as of today, the DOW is UP 9% for the past 5 days and actually DOWN 8% for the past month. But of course, people like Bernanke and the CEOs of Citigroup and Bank of America are telling us that this downturn may be on its way back up and that the banks are running at a profit again. I find it pretty hilarious that the market still responds positively to anything that these snake oil salesmen say. These are the same BS artists that have been lying about profits for years and got us into this mess.
My prediction is that the corruption on Wall St. is at an all-time high right now while bankers and the greediest of the greedy all scramble to save their own asses. This bear market rally, to me, reeks of an inside job and I am not convinced that 6500 will be the bottom.
Having said all that, I think there is still opportunity to make some profits this year. My strategy is stay as short term as possible with my trades and to buy into sectors when they get hit with bad news and then sell when they bounce off the bottom. One example trade I made was I bought Citigroup (3/6) @ $1.05 and sold it (3/10) @ $1.45 . Of course, I could have held it 2 more days and made another 20%, but I took my profit while I had the chance. Another example would be HealthSpring (HS), that fell to $5 after Obama announced medicare cutbacks and then Popped up to $6.50 3 trading days later.
So... if you wanna try your "luck" at this action there are a couple things you could do before risking your shirt. First, you can join http://www.updown.com/ and experiment with some trading techniques with zero risk and maybe even win some actual money. Then, once you have a handle on all the different types of trades\orders you can make go over to http://www.thinkorswim.com/ and give their trading application a try. Their desktop product is very professional and will take you from beginner trader to advanced. Also, they have a "paper money" account that lets you place virtual trades while you're getting the hang of their platform. I really like the advanced orders that you can place, like the many conditional orders. For example, I can have a BUY order automatically placed when a stock hits a certain Bid\Ask price and then after that order is filled, immediately place a SELL order placed at a specific price. You can even have a order placed if the DOW hits a certain level. All very handy when your trying to to do some profit taking and you don't have time to monitor all day long.
Lastly, don't forget to read about different trading strategies here: http://www.stta-consulting.com/TS/basic.htm
Good luck!

"The only constant is change, continuing change, inevitable change, that is the dominant factor in society today. No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be." - Isaac Asimov

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