Don't spend a single day in day-trading

Posted: February 01, 2013

DAY-TRADING may seem like a good way to make money, but it's really gambling, not investing - and often just as effective as buying an armload of Powerball tickets.

Successful long-term investors study businesses, carefully select stocks and aim to hold on for years. They consider themselves, rightly, as part-owners of real businesses. Day-traders, meanwhile, tend to spend hours glued to monitors, watching stock-price graphs and placing orders. They'll typically place scores of orders each day and hold each stock for a few minutes or hours. Many ignore company fundamentals and may not even know what various companies do.

While investors pay long-term capital-gains rates on stocks held for more than a year, day-traders are stuck paying generally higher short-term rates.

A study by the North American Securities Administrators Association suggested that only about 12 percent of day-traders might trade profitably, and that about 70 percent "will almost certainly lose everything they invest." (Trading "profitably" does not necessarily mean beating the S&P 500, available via inexpensive index funds.)

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