of buy and sell requests and how quickly orders were coming in for any given stock. Ultimately, if Jones felt a stock would close its gap soon after the opening bell sounded, she would take a position in the security. "With a stock that had gapped down at least 2 points or $2, if I traded 1,000 shares and it closed the gap, I made a quick $2,000," Jones explains.
The gap and crap strategy, however, only carried Jones for so long. One of the reasons was that Jones loved to short sell. When investors short a stock, they’re selling shares they don’t actually own but have borrowed on margin. The trader hopes that the stock’s price will fall. When it does, the trader repurchases the stock at a lower cost than he or she originally paid for it. Short sellers then return the borrowed shares, pocketing as profit the difference between the price at which the stock was bought and sold. "I was definitely a bear," Jones acknowledges. "But I knew you couldn’t really be a bear in this market."
Indeed, as the Dow Jones industrial average continued to rise to astronomical levels, the strength of the market made it especially difficult to earn money as a short. So Jones did the smart thing. She adjusted her game plan.
DEVELOPING A NEW STRATEGY
One technique she adopted was to divide her trading day in half. Because she lived in California and was following the markets in New York, the first half of her day ran from 6:30 a.m. until 10 a.m. She’d watch how the market opened and determine, based on the first 15 minutes of trading, whether it looked like it would be an up day. If so, how long would that upswing continue? Also, she tried to determine which sectors were likely to be hot. During the second half of the day, which ended at the 1:00 p.m. closing bell, Jones again looked for either strong or weak sectors and then the strongest or weakest stocks within those sectors. It was nerve-racking for several reasons, not the least of which was knowing that "everything can change in the last hour," Jones says.
Through it all, the wily investor managed to pick her share of winners and losers. For instance, at a
time when some investors were buying Microsoft (Nasdaq: MSFT), Jones made money shorting the software giant during periodic dips in the company’s stock price. Another time, however, Jones bought an Internet highflier, Excite! (Nasdaq: XCIT), and took it on the chin.
"I went long and it started going down, and I couldn’t get out," she says. As Jones watched Excite! drop by a point, she remembers thinking: "How in the heck am I going to get out of this thing?" When all was said and done, Jones lost $1,200 that day. But she learned firsthand a valuable lesson that all investors would do well to heed: stocks "tend