Weekend stock trading – A short term experiment

Please follow and like us:

Is it possible to buy a stock and hold it for a day or over the weekend and sell it for a profit? We’ve all seen times when news of a certain stock comes out and that stock price jumps double digits, but do regular everyday business stock prices fluctuate enough to buy one day and sell the next. I have to admit when I did this weekend stock trading as a short term experiment I wasn’t planning and such a high turnover rate.

Short Term or Shortest-Term

I wasn’t always thinking of what the shortest term I could hold to result in a decent annualized return. I was originally planning on holding onto the stock for a few weeks or even a couple months at first. Since most of the stocks on my watch list I have because I am OK if they drop in price slightly and I need to hold for a longer period to recover because most of the stock on the list have a strong dividend payout.

But I had already done short-term trading a few times earlier and continue to do that strategy. However, this time when I traded on Friday and came back to see that I was up Monday morning, I saw an opportunity to sell and make a quick profit. I decided I then that I wanted to see how quickly I could turn my stock trade around and what annualized rate it would result while sharing my results.

Planning for the long-term

The trade itself could be done with almost any stock out there. Stocks move in price higher because of the growth factor, while others are cyclical and could be almost anticipated, or income and dividend stocks try to stay fairly consistent and pay out dividends instead of price changes. However you trade, you must plan for the long-term. That doesn’t mean though that you need to HOLD the stock for the long-term.

Planning for the long-term means that you have an idea of when you would sell the stock if ever, and what your next move will be. If you don’t have a move for your plan, then why are you selling? It’s better to have your money working for you then sit in your cash account barely earning anything. But planning requires knowing the next step. Always ask yourself if you want to become a more active trader which will trade more frequently or if you will be a more passive trader who will buy and hold for the long-term.

The Trade – On a Friday

I previously had been watching and chose to trade the stock NexPoint Strategic Opportunities Fund NHF. As you know I enjoy researching closed-ended income funds, they always make a great long-term holding option, even if you don’t always hold them long enough to receive the dividend benefit. I had previously held onto Pimco High Income Fund PHK and sold it and noticed NHF was one of its peers. I used the platform Robinhood to minimize my transaction fees as well as utilizing a limit order when selling to make sure the stock would sell for what I wanted it to. As a side note, if you use the Market Price feature Robinhood has a tendency to sell it for lower than you’re expecting so they can get a better price on their side.

I bought NHF on 1/25/19 at $21.46 a share. Looking back it was a high price per share especially considering how much lower it’s trading today, but if it was going to be a long-term hold I was less concerned of the share price. I had originally put in a limit sell order for $21.67 which would be a 1% gain. I figure if I could get that in less than a month then it’d be a decent return. This was on a Friday afternoon and I left to enjoy my weekend.

Coming in the Monday morning I noticed that the stock had been up already, not much but then the thought came to me that I should see what my annualized return would be for the single day trade. On Monday morning of 1/28/2019, the stock was selling for $21.52 a share, so I adjusted my limit sell price to match and the trade was complete.

Monday Calculations

The price difference of $21.46 to $21.52 is only $.06 per share increase. Which compared to my initial 1% was really not that much, but I was wondering what a single day trade return would be.

Calculating the annualized return there were a few ways to do it. You could figure out the number of days over the length of the year. Or you could also calculate the number of business/trading days and use the number of business days you held compared to the total business days which is 252 days.

We will use the calculations found here from fool.com. First, we will do the annual rate:

The amount gained is $.06, we will divide this by the current value of $21.52 and get a gain of .002788. Or .27% gain, it’s still small, about a quarter of the 1% we were waiting to receive. But now we use the formula :

Annual return – [(return + 1)365/Days – 1] * 100

When we input our Return and add in the 4 days then we get the annualized return of 28.92%, that is counting us holding it all day Friday and Monday. If we consider closer to 3 days you get a return of 40%. Either one of these is much greater than the average return of the stock market over the past few decades. But the assumption is made that once you sell you will need to find the same return that day and make another trade.

Annual return – [(.002788 + 1)365/4 – 1] * 100 = 28.92%

Annual return – [(.002788 + 1)365/3 – 1] * 100 = 40.31%

Now if we update the formula to be 252 instead of 365 and leave it 252 divided by 1 day we still end up with 252 and the formula looks closer to this:

Annual return – [(.002788 + 1)252 – 1] * 100 = 101.69%

A return of 101% is amazing!!! If I could lend out $100 and the next day earns $.27 one day and then compound it each day and receive $201 at the end of the year most of us would take that investment any day.

Conclusion

From my weekend stock trading experiment it brought up four good points.

First was to make sure that I used a trading program to eliminate transaction fees that would have never made a trade like this possible.

Second is to put in limits to trade and buy/sell for what I input as the price. Another trade I was doing went up 1% within 2 days but I forgot to put a limit on the sell so it adjusted the sale price automatically to be .33% instead. Now I always set a limit sell even if I input the current market price.

The third is to have a plan in place. Taking quick short-term gains is good, but if I never traded again I would have only earned .278% for the year. If it had taken me a month to get that return then my annualized return would have been 3.34%. At that point, I would have been better off earning dividends on an income fund. Have a plan in place, watch a handful of stocks and know what a good price is for it or if one has an extreme drop and be prepared for a possible rebound.

Fourth is to remove the emotion from the trades. We’ve talked about this before but the reasons we recommend limits, especially selling limits that are set immediately after you have purchased the stock, is to remove emotion from the transaction. All too often we all play the hypothetical “what if” scenario. What if we decided that a $.06 gain was good, but tomorrow it may go up to $.09, or a day after that up higher to $.20. This makes us greedy and should be removed so we can logically capture our profits and move on with our plan to find another investment.

There may be a handful of times when you look back and kick yourself saying, “I could have gained so much more if I held on a few more days/weeks”. But for those rare handfuls of times that you see those, there will be others where you will say “I’m glad I cashed out when I did or I’m glad I took my profits and could move on.”

Are you ready to take action into planning for your upcoming trades?

Please follow and like us:

10 Comments

  1. I have never done trading and have always been interested in learning the process.

    I read a story many years ago about 2 retired women from the USA and how they started small and made 100’s of thousands of dollars by trading and this piqued my interest. How do I learn to do this without being ripped off

    I sure would like to know please

    • There are many stories of those who turned a small amount into a large amount, however, most of them don’t tell you what they did if you ask for details.  Or they will ‘sell’ you a membership and give you tips on what to do.  Any programs of education should be a red flag especially if they don’t tell you when to sell or work with you directly in your trading choices.  They most likely are just selling you a newsletter of what you can buy (but you have no way of knowing if they actually own it or traded it).  

      To start, create an account and track a few companies that you like (about 10, no more than 20), watch them go up and down and in time you will get an idea of the baseline.  You could buy a few of them (starting small with as little as 1 share) and then as they go up in price have in mind when you will sell and follow through.  Don’t try to hold on forever unless that’s part of your long-term goal.  

  2. Hi Marc, its true that we must eliminate any form of emotions whenever one is on the stock market. I had lost huge amounts of money as a result of my emotions getting the best of me. I like the fact that you tried to experiment new things to figure out what works better, this is a nice attempt considering the turnover. Kudos to you.

    • Oh so true, if you want to hold forever it’s easier to calm your emotions, but if you want to keep watching and try to make some profitable trades then remove the emotion and have a plan.  

  3. Trading is weird to me, it is like I’m drone into it yet at the same time I don’t know much about till now anyways, even though I’m in need of extra cash (unless I’m looking at it the wrong way).

    We hear and read countless stories on this subject that made drastic changes in so and so life and wish we could be one of the lucky ones.

    I guess my question is, where to start? and if so… how would I know it’s wise to take action?

    Thank you

    • Try it out.  Life is a lot of experiments.  If we’re going to pay for lessons of failure, I’d rather they start with a small amount of money than larger sums.  We are working on a guide to ‘intro to trading stocks’ with a few basic ways to trade.  That’s why we’re experimenting all the time to see what works and how we can make it simple and fun for others to learn on their own.  

      If you’re serious about learning on your own, realize that you could lose it all so I would start small ($10-$100) and watch the stocks and make some trades.  Learn some lessons along the way, after some losses and a few gains you’ll start to gain more than you lose (or hold onto your losses until they finally turn you a profit).  

      Let me know how it works for you and be sure to check back soon with our traders’ guide.  

  4. I have never tried the weekend stock trading tactic you mention but something very similar. For one year I was day trading, spending quite a few hours buying and selling, and even buying on margin. I would set limits as you mention having done which is very helpful for the very reasons you stated.

    There is a tendency to second guess yourself and hope for the best and feel that you will do better if you wait and grab that last bit of profit before selling, but that is really not a good course of action. Taking the emotion out saved me from losing a lot of money and also kept my gains within my expected range.

    Those days of day trading are long behind me now, and I prefer to do the safer investments and look at the long term goals that I have versus taking a lot of risks – this is perhaps a matter of age, as I am 63 and there is no reason for me now to look for quick increases in my investments. Slow and safe…

    For this weekend trading tactic, have you worked out what may be the best type of stock to use it with? I mean like technology, oil stocks, or similar…Some tend to be more volatile than others, and this may also affect the risk/reward…That would also be interesting to determine which work best with the weekend short term stock trading strategy.

    • I love that you have been a true day trader. We’ve only done day trading on the Forex platform.   To utilize the Robinhood platform they discourage day-trading and only allow 4-intraday trades per month, but they say nothing about next day or weekend trades…  

      We love some of our slow and safe investments still, consistent returns and less volatility with the majority of our investments, but while we’re writing about our experiences we figure we have some ‘play money’ so let’s see what we can try.  

      We have done a number of technology trades in the past few months (Microsoft, Hubspot, Salesforce).  And a few with extreme news changes (GE, UNIT, SJT).   There are technical trends and signals that can be learned as well and put to the test (We’ll simplify some) for some of these more cyclical trades, but like you said we need to remove the emotion and keep it business, taking our gains as they come and not waiting to hope for one to explode.

  5. Very interesting post! I wasn’t aware of stock trading before until I read your article. Thank you for your valuable information. I haven’t experienced trading before, but I would like to learn how to start because I like to work from home. Do you have any recommendation about which program is the best to start with? 

    • We love the Robinhood platform because they were one of the first with the $0 commission phase and were some of the first to allow you to invest in Crypto without going through the extreme Verification process.  There are others out there and we are aware of them and comparing the differences hopefully providing a new comparison review.  But the trend is gaining traction and will likely become the norm in individual investment accounts.

Leave a Reply

Your email address will not be published.


*