Internet Day Trading
Stock tips from the Tiger Stock tips from the Tiger
It's the biggest financial story on the planet. Routinely, as soon as a technology- or Internet-related company goes public on NASDAQ and the Dow Jones, its stock seems to shoot up 100 percent instantly. Traders who are ready for the surge can make tens of thousands of dollars in a few hours!

For months, financial experts have predicted a tech-stock plummet, but after two years of nearly non-stop growth in the market, these critics now rank below Bill Clinton on the credibility scale. Recently, though, day traders have seen their stocks struggle. Is the Net's bull run coming to a halt?

In case you're interested in juggling stocks, you should realize that day trading is different from investing. Day traders are looking for the quick payoff every day (hence the name), while investors generally take a more conservative approach, looking for big profits further down the road. Some day traders will see how much they can make off a large chunk of shares, while others may try to scalp a profit from a 1/4 bump.

Granted, the day-trading path has risks, but I certainly can't fault the people who dive in. After all, if you had invested a few thousand dollars in America Online several years ago during its initial public offering, or IPO, you'd probably have about $2 million right now. This year, when Ziff-Davis spun off its Internet operation, ZDNet, as a separate stock on March 31, the price nearly doubled after just one day. However, as a sign of how volatile such stocks can be, it's currently at a point well below the IPO price.

It's very easy now for traders to work the stocks online, thanks to sites like E*Trade and Accutrade. Along with other online brokerages such as Fidelity, Charles Schwab, and Datek, these companies enable you to jump in and out of the stock market quickly. But is quickness worth more than common sense?

According to Tom O'Brien of Tiger Investment Group, online brokerages make day trading faster, but not easier. Many people, spurred by the hype, are taking up day trading without the patience and know-how that's necessary to survive. Learn2Trade.com has some excellent tips on how to get started, as does The Motley Fool; you should definitely attend "The Fool's School" if you plan to begin day trading.

One of the first things you need to learn is how to lose. Yes, lose. A common folly is revenge trading, where the day trader seeks to "get back" at a stock that didn't perform as he'd hoped. (It's the stock market equivalent of road rage.) If you can't deal with unexpected failure, this may not be the best hobby for you.

Another mistake is wanting too much: For some day traders, a small profit is never good enough. Such greed scuttled the merger of Lycos and USA Networks this spring. Many Lycos stockholders weren't satisfied with the deal's long-term payoff; they wanted a huge profit right away! They weren't willing to wait to see the benefits of a union of Lycos with USA's Home Shopping Network and TicketMaster. Check out message boards at sites such as Raging Bull for a barometer of stockholders' feelings -- but be cautious! Visitors with an agenda may sometimes post misleading messages.

Oh, yeah, here's a question for those who already are active day traders: You are recording every single transaction, aren't you? Many of the online brokerages keep track of how much your portfolio is worth, but the I.R.S. will be looking for a lot more specific information about your profits come tax time. (If you forgot to keep a record this year, don't worry. After all, what's a few thousand dollars in federal penalties?)

If you're curious, try the game at E*Trade as a test. You start off with a fantasy account of $100,000, which you can use to "buy" stocks and see how they fare. What's the next big tech stock? Visit the site for the U.S. Securities and Exchange Commission for notice of the next IPOs, and CBS's excellent MarketWatch has the "IPO Daily Report," in addition to the day's stock news.

The question that no one really wants to ask is, "How long will this last?" The acclaimed success stories of the online world -- Amazon.com and the Ebay auction site -- have seen incredible jumps in their stocks, yet neither company has turned a profit. What gives? Isn't there some dire correction around the corner, a massive plunge of the tech stocks that will send hundreds of day traders reaching for the Maalox?

Well, yes. It's bound to happen. The stock market's performance has always been cyclical, and it's only a matter of time before some of the inflated tech stocks succumb to the weight of reality. I can't say when it'll happen, but you should be prepared. In the market's game of "Musical Chairs," you don't want to be the one left standing when the music stops.

--Ken Hart, who thinks the asking price on Stonehenge is a little high

Other sites worthy of stock:
  • BigCharts
  • TheStreet.com
  • CNBC video feature: Day Dreamers

    Brain Droppings
    When, if ever, will high-tech stock prices begin to drop?
    Sometime this year
    Not for a long time; tech companies will keep growing
    When hell freezes over or when the Go-Go's reunite again -- whichever comes first

  • Copyright 1999 OneZero Media, Inc.