Stock Market Trading… at the Mall

Investor or Gambler?Not long ago my wife and I were out of town at a large shopping mall and came across a kiosk featuring all sorts of stock market “education information”. I took one of the guy’s cards and looked up his website to see exactly what type of “education” was being offered, ahem…sold. Well, turns out it is basically a day trading system where you buy and sell small amounts of stock in order to “capture” profits.

The foundation of day trading is what used to be called “charting” or technical analysis. Adherents believe that they can forecast future price movements based on stock “charts” or trends.  I can recall back in the late 1990’s, almost every national magazine had stories about investors leaving their 9-5 jobs in order to sit at home and day trade stocks. It worked…until it didn’t.

 

Investor or Gambler?

Day traders aren’t really investors at all. They are gamblers. Trying to predict and “capture” very short-term price movements in stocks is much closer to the activities in Las Vegas or Atlantic City than Wall Street. Remember the basic math of the market…for every buyer there is also a seller. In the aggregate, these match up each day but the day traders aim to catch small timeframes where imbalances may exist.

The stock trading “information” described on the website I visited uses lots of big terms like “Stochastic Oscillator” and “Bollinger Bands”. My guess is this underscores that this is a system, only well understood by a few” experts”. Remember this: Trading hyperactivity decreases returns because of trading costs.

We believe in the power of the markets. We don’t believe you have to forecast future prices to be a successful investor. Ready for a real conversation?

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