A handful of students crouched over their computers at the Online Trading Academy one morning last week, studying stock prices and exchanging buzz words: “ideal entry points,” “maximize profits,” “who's hot?”
Their instructor, Robert Dunn, a seasoned trader with a Chicago accent and thick gold necklace, pointed to the peak of a graph on a projection screen.
“Some sucker was over here buying at this price,” he said. “We don't want to be that sucker.”
Interest in day trading, or buying and selling stocks within the same trading day to reap quick profits, has climbed 20 to 30 percent at the academy the past few weeks, staffers say – part of a growing number of amateur investors who are actively managing their own portfolios. Financial planners, however, say day trading is a high-risk strategy. They emphasize a far different approach: holding stocks for the long term, even when the market falls.
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The stock market's recent drop – 19 percent this month – has heightened many investors' fears. But people who actively trade stocks see the recent roller-coaster swings in the market as an opportunity to salvage retirement accounts or even make a living.
“As a trader, it doesn't matter whether the market goes up or down,” said Dunn, who's spent 25 years on the trading floor in Chicago. “You can make money either way.”
Day trading was once dominated by financial firms and professionals but has become more popular among amateurs because of the Internet. Traders, who often buy and sell dozens of times a day, usually buy stocks on borrowed money, studying charts and indicators to determine when a stock is ready to move in price.
They look at prices, technical patterns and market trends. Their goal: ride a stock's momentum and get out before it changes course. Many see it as a safer alternative, these days, to investors' buy-and-hold mentality.
“I've made so much money and lost it because I was an investor,” said Charles McNeilly, 62, a mechanical inspector from Cleveland County and student in the weeklong trading class. “I figured there had to be a better way to capture profits.”
McNeilly has been watching his retirement fund from Duke Energy, a previous employer, since he left in 2001. He's been content until recently, when the market began to slide. Now, he hopes to learn about risk management, he said.
“When people get really scared, they look for ways to protect themselves,” McNeilly said. “I trust me with my money better than I trust anybody.”
Day trading is far riskier than leaving your 401(k) alone, financial advisors say.
“I learned a long time ago that you can be right on so many counts and have the wrong timing and lose a boatload of money,” said John Gugle, a financial planner with Alpha Financial Advisors in Ballantyne.
As little as 1 percent of a portfolio's performance is related to timing, according to a 1986 study by Brinson, Hood and Beebower, Gugle said. More than 93 percent is related to asset allocation, or how investors distribute their money, the study found.
“It's about having a strategy,” Gugle said, “and sticking to it.”
That's what most investors have done, even in these uncertain times. An Ipsos/McClatchy poll conducted this month found that just 5 percent of investors said they'd sold stocks, and just 8 percent said they'd stopped making contributions to a plan such as a 401(k).
Advisers say sticking with such a plan, even amid hard times, makes sense. If you pull out your money in response to a drop in the market, they say, you will have locked in your losses and will likely miss the market's inevitable rebound.
Many Americans have a stake in the market. According to an Investment Company Institute study, 76 percent of full-time workers ages 21 to 64 who earn $40,000 or more a year have access to retirement plans, and nearly half of all U.S. households own mutual funds.
Over time, long-term investors can expect an average return rate of 10 percent a year on their stocks, up to 6 percent for bonds and up to 3 percent on cash, experts say. It can be hard to keep that perspective when the market has fallen 38 percent in the last year.
Traders say their strategy makes larger windfalls possible. Dunn, the trading instructor, said he likes to make 5 percent on all his trades. Jamie Ray, a trader who moved to University City from Maryland recently, said he usually doubles his money.
“One-hundred percent sounds like, ‘Oh, yeah right,' but it's not as crazy as you think,” he said from his home office, which includes three computer screens and a speaker that spits out a commentary from market-watchers.
Ray, a contractor who also sells real estate, got into trading six years ago after a speaker at a free seminar brought it up. He forked over $1,000 for a trading class and read books on the subject.
Now, he focuses on a dozen or so stocks at a time to get a feel for how they trade, though he's been out of the market recently because of his move. He likes exchange-traded funds, or chunks of stocks, and knows commodities have done well lately.
Ray also buys options. For instance, he'll study a stock until it peaks and then buy “puts,” which bet on the stock to drop, he said.
“You don't really need a background in finance,” he said. “What you need is common sense and a strong stomach.”
That was the message at the Online Trading Academy recently, too, with Dunn declaring that “you don't need to be a rocket scientist” to be successful.
When he pulled up a series of charts on the stocks CDNS and SYMC, a woman in the class interrupted to ask what they did. Dunn shrugged.
“I don't care what they do,” he said. “What are we in this business to do? Make money.”
(CDNS is Cadence Design Systems, and SYMC is Symantec Corp. Both are mid-sized software companies based in California's Silicon Valley and trade on the Nasdaq stock exchange.)
The would-be traders, most of them men who were retired or nearing retirement, listened intently. They each paid about $5,000 for the class. Many said they enrolled to learn how to protect their retirement accounts.
Linda Schabow, 50, who lives near Raleigh, said her 401(k) dropped 30 percent in the last month. The administrative assistant still hopes to retire at 62, so she and her husband, Mike, used vacation time to take the class.
“We could have avoided a lot of that (loss) if we'd have known how to manage it properly,” Mike Schabow, 43, said. He said he hopes to make a 5 percent return every month.
Tom Wilhoit, 54, also wants to cushion his retirement, but he eventually hopes to earn $300 to $500 a week to quit his job in the trucking industry. Wilhoit, who lives in Albemarle, said the long night shifts are not the lifestyle he wants – and that trading “could be a golden opportunity.”
Trading Academy workers, who sat outside the classroom as lunchtime neared, talking trading and golf, agreed that now is the time.
“Financial advisors are saying, ‘Oh, it's going to come back up,'” academy staffer Charles Brooks said. “Yeah, but you're going to be dead by the time it does.”