General Stock Investment Strategies/daytrading

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QUESTION: Hi, my question is, I am thinking about starting a daytrading account with Merrill Lynch online. My plan is in the future  to open a margin account and depoist about 29,000. Maybe once or twice a day go in and out of a stock. I would only be using my own money in the margin account. by doing this would I be avoiding interest  on margin? Do you see any pitfalls in what I am planning on doing?  Thanks

ANSWER: Joan,

Avoiding interest is a good idea but the probability of making money via day trading is low. Most day traders use technical analysis, which most studies suggest has no predictive power. Markets are generally highly efficient, meaning that trends in securities prices are already reflected in the current prices. In other words using past prices, patterns and volume information will not likely help you make money in the securities markets. Day trading seems glamorous to some people and the media makes it seem that is an easy way to make money but it certainly not easy to make money this way.

I hope this helps.

Michael
Http://www.series7examtutor.com


---------- FOLLOW-UP ----------

QUESTION: Hi, thank you for answering my question, I have one more quick question, whould the technical analyasis work better if you use it for a longer period of time say a week? Thanks

Answer
Joan,

You are welcome. The answer is generally no.  Markets react very quickly to new information such as price changes.  If a stock has gone up for 364 consecutive days (highly unlikely), does this mean that the stock will rise on day 365? The answer is no.  Actually, when stocks consistently rise, some times their price to earnings ratios become unjustifiably high (internet stocks 1999)and are more likely to fall than rise in the future.

I hope this helps.
Michael  

General Stock Investment Strategies

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Michael Weiss, CFA

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I can answer most questions about stock investment strategies, especially those related to value and growth

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I am the owner of Series 7 Exam Tutor , a financial tutoring business that provides personalized tutoring for the Series 7 Exam, the Series 6 Exam ,the Series 65 Exam, the Series 66 Exam, the Series 63 Exam and the Series 24 Exam . I also offer tutoring for finance courses. For additional information, please visit, Finance Exam Tutor. Prior to launching Series 7 Exam Tutor, I worked in investments for 20 years with the majority of this time focused on investment analysis and portfolio management. I have worked for large companies such as Merrill Lynch and Evergreen Investments and have also worked for smaller firms as well. Throughout my career, I have sought to mentor younger colleagues whenever possible, especially those enrolled in the CFA program. I completed the CFA program in 2002 after passing all three exams on the first try. I also passed the Series 7 Exam with a score of 94%. For additional information about me, you can visit the links below:
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CFA Institute and CFA Society of Philadelphia

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M.B.A. in Finance & Investments from the Zicklin School of Business at Baruch College and a B.A. in Finance & Economics from the City University of New York Baccalaureate Program.

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