How to Play the Hourly Stock Market

Watch the numbers carefully, and remember to buy your stocks low and sell them high.

Very few people ever succeed in the stock market, and those that do most often follow Warren Buffet's tried and true axiom--buy and hold. Buffet, a legendary investor, argues that people should buy stocks as if they were buying viable businesses, because in the long-term, successful businesses will be successful stocks; however, there are day traders who prefer to simply ride out the day-to-day fluctuations in stock price, providing them at the daily closing of the stock exchange with a handsome profit that is built from 20, 40, 80 or even 200 or more trades. These renegade day traders risk a lot, and sometimes all of it, every single day.

Instructions

1. Obtain a background in finance that is directly related to trading stocks. In most cases, this would be the completion of substantial collegiate-level coursework in economics. At the bare minimum, you should have a coursework background in microeconomic, macroeconomics, microeconomic theory, macroeconomic theory, econometrics and financial markets, the rough equivalent of a "minor" degree in economics at most colleges.

   This academic background should then be complemented by your own research into industries of interest, because regardless of the stocks you buy, you should trade only those stocks that you understand. Finally, you should practice guessing on your own, without any financial stake, whether a stock will rise or fall within the hour.

2. Open a low-fee stock-trading account. You do not want nor need a stockbroker service. According to investor Jason Kelly, the preponderance, reliability and overall effectiveness of online trading accounts has rendered the services of paid financial planners mostly nil. Moreover, in the age of the Internet, you can perform most of your own research. Thus, you would benefit greatly by opening an account with Scottrade, Charles Schwab, Zecco, or any other online stock trading service and managing your trades completely on your own. Each website will explain explicitly the mechanics of trading through its service.

3. Follow the stock tickers like your financial life depended on it and start trading. Taking advantage of your educational background in finance, start picking stocks that seem undervalued. Some facts and figures worth looking into to determine whether a stock is undervalued is its price-to-earnings ratio, alpha and beta figures, liquidation value to market value ratio and its overall growth history. In general, this data are freely available through services such as Google Finance and Yahoo! Finance, but you may also want to review the publicly available quarterly-earnings reports on your own.

   Since you'll be trading all day, set a point at which you will definitively sell a stock (e.g., a 4 percent to 6 percent drop in the stock value might be an alarm to sell, as well as a 4 percent to 6 percent spike).

Tips & Warnings

• Once you have and trust your investment principles, stick to them. According to investor and financial expert Jack Schwager, most successful day traders---hedge fund managers included---make most amount of their money by sticking to their financial principles through thick and thin. Once the sense of strategy is gone, so might be the entire investment.

References

• "The Neatest Little Guide to Stock Market Investing" Jason Kelly. Plume; 2009
• "The New Market Wizards" Jack Schwager. Marketplace Books; 2008

Resources

• Vault
• Kiplinger
• Barrons
• Forbes
• Zecco