Ever heard of the phrase “buy the rumor, sell the news?” This is the practice of getting in quickly before an event moves the market or a specific stock, then getting out immediately afterward. Although individual moves in and of themselves might not be substantial at just a few percentage points here and there each market session, collectively they can add up.
Imagine you have $10,000 to invest and you focus on simply getting 1% a day, each day, for the entire year. Nominally it’s a measly $100 in returns per session … but with about 240 trading days, that’s $24,000 in profits by year’s end! Heck, if all you average is 0.4% a trading day, you nearly double your money in 12 months.
The barrier to this, of course, is being tied to your computer to make those swift in-and-out trades and having the IQ to digest what’s going on and connect it to trades. It could involve buying a stock right before highly hyped earnings, or buying immediately after a bad headline hits to take advantage of the “dead-cat bounce” after shares sell off sharply. It could involve making directional bets on sectors or even the broader market based on macro news.
And even presuming you have the time and the brainpower, there’s always the problem of trading fees and short-term capital gains if you’re trading in a taxable account. Those short-term bets come at a much higher tax rate, and if you only make $100 a day, there’s a real chance that profit will be eroded substantially by a $5 to $10 trading fee for every transaction you make.
But if you have the time, a tax-free IRA or the means to make the trading fees and taxes worth it, day trading can unlock big-time opportunities that buy-and-hold investors simply can’t capitalize on. Best of all, you often don’t have to open a different account to make these trades — simply use your existing platform, just use it more often.