• Gordon J. Bernhardt

Day-Traders Are Taking the Day Off

Anyone who has been involved in the financial markets for any length of time knows that volatility—both to the upside and the downside—is an inevitable fact of life. As we have said before, the one thing markets dislike most is uncertainty, and volatility is a function of uncertainty around the future direction of prices.

Starting in the early days of the pandemic in 2020, uncertainty abounded—and so did volatility. That, in turn, gave rise to a boom in day trading: high-velocity buying and selling of stocks in an effort to profit from big intraday swings in price, both rises and drops. And this wasn’t just among hedge fund managers or other large institutional investors moving thousands of shares at a time; the rise of trading platforms geared toward individual investors, such as E-trade, Robinhood, and others, enabled thousands of Individuals—many of them with “day jobs”—to get involved. In fact, this sector drove much of the activity in the so-called “meme stocks” like GameStop, AMC Entertainment, Blackberry, and others.


But with the market in the doldrums for much of 2022—notwithstanding a few recent big days—many of the day traders have apparently lost interest. According to a recent article in the Wall Street Journal, the lack of dramatic moves to the upside—which often set up equally dramatic swings to the downside—has caused many of the individual day traders to lose interest in the markets. In fact, for many, higher inflation and associated increases in the cost of living have dictated that funds previously allocated to trading activity be redirected to more mundane purposes: buying gasoline and groceries and paying for housing, for example.


Money market balances, though still below the peak of about $5.5 trillion they reached in May and June 2020, are still hovering around $5.25 trillion, according to the federal government’s Office of Financial Research. While this balance has fluctuated between the high mentioned above and about $4.9 trillion during the past two years, this steadily high balance suggests that a large amount of cash is “on the sidelines,” waiting to be deployed when investors believe the time is right.


Of course, we do not recommend day-trading or other attempts to “time the market.” For most investors, the wisest path is to establish a well-diversified portfolio of assets that is balanced according to the investor’s tolerance for risk and position in the investment life cycle; to rebalance the portfolio when market movement makes it necessary; and to remain committed and patient, allowing the markets to set pricing and create gains over time. The costs associated with rapid, in-and-out trading—both transaction costs and taxes—can greatly reduce the long-term gains actually realized by the portfolio. Instead, we recommend an approach that features low transaction costs, tax efficiency, and above all, commitment to an established, long-term strategy. Though less “thrilling” than the day-traders’ methods, research has repeatedly demonstrated a much greater likelihood of success with this latter approach.


Bernhardt Wealth Management is committed to the long-term success of our clients. Toward that end, we offer investment and wealth management guidance that is presented with our clients’ best interests foremost—always. To learn more, click here to read our recent article, “The Crystal Ball and the Rearview Mirror.”


Buen Camino!

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