A couple of potentially useful thoughts for day trading are the AFLAC duck and companies with products with high profit margins. The AFLAC duck may be cute but AFLAC makes money. The company has become an “outperform” or “buy” on many lists in the last weeks.
Another recent piece of news is that Dow Chemical’s acquisition of Rom and Hass, a specialty chemical company, has turned out well. It would appear that the focus of investing and day trading has moved from market recovery to anticipating who will be best do business in the future.
Day trading as three focuses. The first is knowledge of and skill at the technical aspects of day trading. In day trading you need to know your software and hardware. In day trading you need to know the basics of buying and selling and you need to know them very well.
Second, you need to understand minute by minute, or second by second, market moves in day trading. You need to understand how the market fluctuates and how you can make the best profit over the long term while avoiding catastrophic loss.
Third, in day trading you need to have the same or better send of market trends as the successful long term investor. In day trading one has the opportunity to make a large portion, if not most, of the profit in a stock move. In day trading you can make this profit in a day, an hour, or even minutes. In day trading you will move on to the next profitable target while the investor will hold on for a little more return on investment and, hopefully, security in preserving capital.
The point of mentioning the AFLAC duck is that AFLAC is recovering from the market meltdown and stands to see an increase in its stock price. That increase will not, necessarily, happen in tiny increments day by day. The expected stock price increase will happen minute by minute in fits and starts allowing the successful day trader to profit on stock price increases and stock price corrections on the way up.
In order to do this one needs to have a clear sense of where AFLAC is eventually heading in order to get into the mind of the long term investor and anticipate market moves.
In the case of Dow’s purchase of Rohm and Hass we see a smart move into a higher profit margin part of the chemical business. The problem in technical things is engineers keep finding faster and cheaper ways to do the same thing. Then the developer of a process finds that their competitor is making the same chemical for less and the price of the product, and profit, go down.
However, there are “high cost of entry” parts of the chemical business just like in all technical spheres. Whether it is the high cost of research and development or the high cost of plants and equipment some companies are able to make more money per dollar invested and those prosper. In addition their stock prices go up, providing opportunity for day trading.
As the economy mends itself day trading needs to look at who does business most efficiently and profitably and anticipate stock price moves of those companies.
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