NEW YORK (CNN/Money) - When the tech bubble
burst three years ago, it took legions of daytraders with it, but
there are growing signs that some who went dormant during the bear
market are coming out of hibernation.
Though daytrading may be creeping back, most of
the people involved now are "professional" traders who took
a break during the depths of the bear market. The traders who dropped
steady jobs in hopes of a big payout during the bubble may take longer
to come back -- or may never return at all.
“ You'd think retail investors would have
learned their lesson from the last collapse. ”
Barbara
Roper
Director
of investor protection at the Consumer Federation of
America
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"For many retail daytraders,
it's a case of once bitten, twice shy," said Don Bright,
co-founder of the daytrading firm Bright Trading. "There's
certainly still risk in daytrading, but those investors that
bought and held lost 70 percent during the collapse. Good
daytraders close out their positions every day and go home with a
clean slate."
Although that strategy may sound
appealing, "it's not part of a responsible investing
technique," warned Barbara Roper, director of investor
protection at the Consumer Federation of America. "You'd
think retail investors would have learned their lesson from the
last collapse."
But with the end of the war in
Iraq, stock market prices -- and volume -- picked up, which helped
signal the all-clear for die-hard daytraders.
"The traders are more
confident because there's greater liquidity in the markets, and
they feel they won't get caught in a position during the
day," said Bright, adding that his firm is hiring more
traders after staffing was little changed in 2002.
Another thing daytraders watch is
volatility since they can profit from even small movements in a
stock's price. And some lower-priced stocks have experienced big
price moves and heavy volume of late.
Since May 6, shares of Sirius
Satellite Radio (SIRI:
Research,
Estimates)
have had some big one-day moves: up 33 percent, down 17 percent,
down 5 percent, averaging 96 million shares traded, more than
double its normal 44 million.
Another lower-priced stock that
consistently shows up with the volume leaders is Charter
Communications (CHRT:
Research,
Estimates),
which has had average volume of 18 million shares in the past four
sessions through Wednesday's close -- also well above its norm of
7 million.
The emphasis of daytrading on
these stocks is more pronounced considering most mutual funds
prohibit ownership of stocks priced below $5.
"It only takes a handful of
traders to make a market in these stocks, and they can move lots
of shares in a day," said Dennis Ceru, director of retail
brokerage with TowerGroup, a Needham, Mass.-based research firm.
"Once there's interest in a stock, that volume creates more
interest, and traders start taking advantage of the
momentum."
The pickup in daytrading has also
been apparent at brokerage firms that cater to daytraders, many of
them online services.
Lou Klobuchar, spokesman for
E*Trade, said the company's Professional service, where users come
into its offices and trade, has seen a strong pickup in trading
volume recently.
"It became noticeable at the end of April and has remained
strong through May," Klobuchar said. "Although this
active volume can come on quickly and disappear just as quick,
it's the strongest level we've seen in 12 months."
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Beth Stelluto, vice president at
CyberTrader, said daily volume at the Charles Schwab unit that
caters to active traders has jumped 15 percent since the start of
the year, and 40 percent since the drought before the war in Iraq.
E*Trade's Klobuchar added that the
company tracks the results of traders using the Professional
service, and that measure has also increased recently, but he
warned that this trend has appeared before in the past three
years. "It's good because it hasn't been a spike, but a
gradual increase. However, 15 days doesn't make a trend."
In the years leading up to the
bubble's peak, the volume of online trades soared 161 percent to a
peak of 800,000 trades a day in 1999, according to a study by
TowerGroup's Ceru.
That volume plunged by more than
50 percent to a low of 390,000 trades a day in 2002, but Ceru
expects daily online volume to tick up to 411,000 trades in 2003
and grow about 8 percent annually in the next five years. 
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