 Re: Solar City stock getting pummeled, great opportunity!
I would be VERY, VERY careful with daytrading! You can lose a ton of money. And if you DO decide to daytrade, NEVER, EVER hold a position overnight or over the weekend!
Let's say you have looked at all the charts for Solar City and you come to the conclusion that the stock will go down in price sometime today. (With daytrading, it only has to go down by a few cents for you to make money). So you short the stock and it stays fairly steady, trading within a 5 cent range for most of the day. Then at 2pm, they announce that Solar City just got a $600 Million Dollar government contract. The stock quickly goes up by $2 per share. If you shorted 1,000 shares, you just lost $2,000.
To be fair, you could have MADE money had the news been that the government just arrested their CEO for massive fraud and the stock went DOWN $2 a share.
Why do I say never hold a stock overnight or over the weekend? Because it is almost impossible to get out of your position quickly when the markets are closed. And many times, companies release bad news on Friday after the market closes. It gives people time to think before the markets open back up on Monday. The theory is that rather than investors panicking and dumping their shares, they will study the situation and then maybe the downside on Monday morning won't be as bad as it would have been had they released the bad news during the day.
I had 1,000 shares of American Home Mortgage several years ago. I had bought them at $17 per share a couple of years before that and the stock was at something like $23 and paying a nice dividend. I was not daytrading or anything. There were rumors about the mortgage market going south, but the CEO had been interviewed by reporters and had said their mortgages were rock solid, rated "A" by Moodys and that their company was on solid ground. I figured that even if the stock went down a few bucks, I got in at $17, so it was pretty unlikely I would lose money. And besides, I viewed this as a long-term investment. I thought I had picked well. I had avoided a couple of other companies that had admitted they had some problems, like New Century Mortgage (or something Century mortgage, I can't remember the exact name). I decided to hold on to my stock. That was on Wednesday.
That Friday, after the market closed, the CEO of American Home Mortgage announced they were filing for bankruptcy any laying off almost all of their employees. Yes, the same CEO who had been interviewed earlier that week saying everything was just fine and dandy! On Monday, I sold my shares for $2. My $17,000 investment that I thought was worth $23,000 was now worth just $2,000. So, I lost $21,000. I probably DID get a total of $5,000 in dividends during the time I owned it, so my actual losses were a bit smaller, but that was of little comfort. I wasn't impoverished or anything, but the loss hurt.
Had I been daytrading that stock, I could have had many more shares - like 5,000 or 10,000 shares. My loss would have been amplified.
The fact is, most people who try their hand at daytrading fail. And the losses can be devastating, in the hundreds of thousands or millions of dollars. Companies like Goldman Sachs have giant computers that do nothing all day but figure out which direction a stock is going in and they execute millions of trades each day, picking up a few pennies here and a few pennies there. If you think you can beat their computers, you are insane.
Daytrading is especially not for people who have no money. And those are the people that seem to be most attracted to it. Daytrading is gambling, plain and simple. Yes, it may be somewhat informed gambling, but it is still gambling. I would avoid it like the plague.
Last edited by jeffweico; 02-10-2016 at 12:32 PM.
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