Monday, 21 April 2008

Can I Be a Successful Day Trader?

At the moment I just put in as much money as possible into my mutual fund and wait for the world stock markets to go up bit-by-bit.

But I wonder whether I could be a day trader?

A day trader is someone who buys and sells stocks all day long. He or she studies the news, does research on companies, and so on.

People who subscribe to the efficiency market hypothesis would claim that this is a waste of time because you cannot beat the market.

Nevertheless, I still wonder. Today the ASX200 shot up about 150 points, an increase of about 2.3 per cent. The thing is that today is Monday and during the weekends I had a strong hunch that this would happen. How? Everywhere else in the world, that is, in Europe, America, and Asia, stock markets were going up. Everyone was positive. In Australia everyone seemed rather positive as well and yet the ASX200 fell on Friday. So then I thought that it had to go up, and my hunch was right because it did go up.

Of course, I have to be careful about confirmation bias. Before I use real money I can test out my skills on paper and see what would happen hypothetically.

Vanguard founder John Bogle believes that investors should get trading out of their system by allocating 5 per cent of their portfolio and no more to these risky pursuits. The other 95 per cent must not be touched.

Many believe short-term trading is akin to gambling. I'll just have to be careful. Even though I am warned about the dangers of short-term trading, every day I get the feeling that I can beat the market. I watch the major indices all the time, not only the ASX200 but also the S&P500 as well as the FTSE100 and Nikkei.

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