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Volatility is an ally to day traders

Rebecca Buckman & Susan Pulliam

Florida, March 5: The Dow Jones Industrial Average is down sharply from its peak earlier this year. Federal Reserve Chairman Alan Greenspan is jawboning about the overheated economy and could raise interest rates again.

To investor Joe Copia, it's all background noise. Copia, a vice president at a gas-supply business in Bonita Springs, Fla, is a short-term investor - someone who moves in and out of stock positions quickly, sometimes within minutes. Those huge see-saws in the market over the past few weeks? The moves that have seen the Dow drop hundreds of points in a day while the technology-laden Nasdaq Composite Index soars to new heights? No problem. "The more volatile and crazy it is, the better," says Copia, 42 years old.

He and his fellow day traders, he says, "really are having much better returns (now) than, I would think, the buy-and-holders. I know that I'm doing better." Essentially, investors like Copia can steer clear of bigger market trends by simply buying a fast-moving stock-any stock-at a certain price and selling it moments later for a small profit. If they do it successfully over and over, the profits add up.

That's a very big if. Some studies have shown that most people pursuing the complicated, rapid-fire trading strategy lose money, even in a volatile market. Day traders also can lose big when they sell stocks short, meaning they bet on a stock-price decline by borrowing shares and hoping to repay them later at a lower price. The losses can be magnified when trends don't go their way.

Copia declines to say exactly how much money his small trading portfolio has made so far this year, though in late February he allowed that he was "still up this month." He devotes less than $40,000 of his money to minute-by-minute trading, which he does from his desk at work between calls from customers. He pursues a more conservative strategy in his larger retirement account.

Copia shares many of his short-term picks with other traders on his own Web site (allstocks.com/copia) and on his discussion "thread" on the popular Silicon Investor site. His methods aren't too complex: Usually, Copia buys small lots of stocks, perhaps around 500 shares, after noticing a news story or press release from a small company, or hearing a rumor about a stock in some of the other chat rooms he visits daily. Those events can often produce price pops in tiny stocks.

Often, he buys and sells the stock several times in one day; sometimes, he holds positions for months. Copia gets his news from a service called MarkeTrack and consults a friend who does technical analysis on stocks, studying and charting their price trends.

-- The Wall Street Journal

Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.

 

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