Once upon a time, Dow Chemical was considered one of the stock market's steadiest buys as a darling of buy-and-hold investors who could count on strong returns and a solid dividend.
But last Friday it was in the crosshairs of day-traders, who capitalized on a 10 percent swing in the stock price that occurred even on a normal-volume day. As the stock has lost half its value over the past six months, it has gone from an investment staple to a trading vehicle.
And Dow Chemical is far from alone.
The quick-trading trend is about more than picking on weak stocks. Even retail investors are switching to strategies that, while not involving moves quite as rapid as employed by day traders, move much more quickly in and out of trades than customary in long-term planning.
"We've been very quick to take gains, get out of positions and move on, and that's just a function of what we're seeing in the marketplace right now," says Bob Acri, president of Chicago Investment Group. "We're seeing stocks like Dow Chemical—now it's a trading stock where typically it was a buy-and-hold."
Day traders are targeting similar large-cap Wall Street mainstays, whereas the last day-trading boom in the early part of the decade focused primarily on small- and mid-cap companies because of how easy it is to move their prices.
Sector plays have become less popular, with both day traders and investors more than ever sifting for companies outperforming their peers.
"Being in the right sector is not necessarily correct anymore," Acri says. "Stock selection is extremely important right now. I think for the first time you have to watch when you're buying, and where the entry points are."
Running With the Big Dogs
As day trading grows in popularity, participants will need to learn the finer points or risk losing a lot of money in a hurry.
John McLaughlin offers several trading tools through his Daytraderswin.com Web site based in Laguna Niquel, Calif., that offers protection from getting victimized by larger traders who try to buck trends employed by traditional trading software.
"The people that make the most money are the people that are in control of the game," McLaughlin says. "It was a great trading game in 2000, 2001. All you had to do was show up for the game and you could win. Not so today. Today you need to learn to trade stocks new-school."