Would betting on fallen (blue chip) stocks be a good strategy?
"You can't do this automatically; you want to understand whether the drop is from a short-term high. is likely to be a short-term low, or reflects an actual change in how folks expect the company to do in the future. Having said that, some people do favor a strategy which resembles this, betting on what are known as ""the dogs of the Dow"" in the assumption that they're well trusted but not as strongly sought and therefore perhaps not bid up as strongly. I have no opinion on it; I'm just mentioning it for comparison."
Yes, one such strategy is dividend arbitrage using stock and in the money options. You have to find out which option is the most mispriced before the ex-dividend date. Sorry to be boring but you have the luxury of time and do not need high-risk investments. Just put the surplus cash into a diversified blue-chip fund, sit back, and enjoy it supporting you in 50 years time. Your post makes me think you're implicitly assuming that since you have a very high risk tolerance you ought to be able to earn spectacular returns. Unfortunately the risks involved are extremely difficult to quantify and there's no guarantee they're fairly discounted. Most people would intuitively realise betting on 100-1 horses is a losing proposition but not realise just how bad it is. In reality far fewer than one in a thousand 100-1 shots actually win. "Point of order: ""What goes up must come down"" refers to gravity of terrestrial objects below escape velocity and should not be generalized beyond its intent.  It's not true that stocks MUST come down just because they have gone up.  For example, we would not expecting the price of oil to come down to 1999 levels, right?  Prices, including those of stocks, are not necessarily cyclical. Anyway, short selling isn't necessarily a bad idea.  In some sense, it is insurance if you have a lot of assets (like maybe your human capital) that will take a dive when the market goes down.  Short selling would have lost a lot of money in your case as the stock market between 2011 (when you wrote the question) and 2014 (when I wrote this answer) performed very well.  On average the long side stock market should make money over long periods of time as compensation for risk and the short side should lose money, so it's not a good way to make money if you don't have an informational advantage.  Like all insurance, it protects you against certain calamities, but on average it costs you money." Yes, theoretically you can flip the shares you agreed to buy and make a profit, but you're banking on the market behaving in some very precise and potentially unlikely ways.  In practice it's very tricky for you to successfully navigate paying arbitrarily more for a stock than it's currently listed for, and selling it back again for enough to cover the difference.  Yes, the price could drop to $28, but it could just as easily drop to $27.73 (or further) and now you're hurting, before even taking into account the potentially hefty commissions involved. Another way to think about it is to recognize that an option transaction is a bet; the buyer is betting a small amount of money that a stock will move in the direction they expect, the seller is betting a large amount of money that the same stock will not.  One of you has to lose.  And unless you've some reason to be solidly confident in your predictive powers the loser, long term, is quite likely to be you. Now that said, it is possible (particularly when selling puts) to create win-win scenarios for yourself, where you're betting one direction, but you'd be perfectly happy with the alternative(s).   Here's an example.  Suppose, unrelated to the option chain, you've come to the conclusion that you'd be happy paying $28 for BBY.  It's currently (June 2011) at ~$31, so you can't buy it on the open market for a price you'd be happy with.  But you could sell a $28 put, promising to buy it at that price should someone want to sell it (presumably, because the price is now below $28). Either the put expires worthless and you pocket a few bucks and you're basically no worse off because the stock is still overpriced by your estimates, or the option is executed, and you receive 100 shares of BBY at a price you previously decided you were willing to pay.  Even if the list price is now lower, long term you expect the stock to be worth more than $28.  Conceptually, this makes selling a put very similar to being paid to place a limit order to buy the stock itself. Of course, you could be wrong in your estimate (too low, and you now have a position that might not become profitable; too high, and you never get in and instead just watch the stock gain in value), but that is not unique to options - if you're bad at estimating value (which is not to be confused with predicting price movement) you're doomed just about whatever you do. The type of day trading you have described is a form of gambling.  As with any type of gambling, sometimes you win.  Doesn't mean you are good at it or will win next time. As long as you clearly understand that you are doing it for fun, I think your current strategy is fine.  If bankruptcy is on the table, you need to stop now. You will lose out on your spread, you always pay a spread. Also, if you are looking at a strategy for using stop losses, try taking into account the support lines if you are going long. So, if the stock is on an upward trend but is dropping back from profit taking, your best best is to take a position closest to the next support line. You place your stop just below the support. this will give you the best chance of a winning position as most technical analysts will have looking towards the support as a buy back area. Obviously, in a bear market the opposite is true.  If you have taken your position and the market move past the first resistance line, then bring your stop to just below that line as once resistance is broken, it then becomes support. You then have a profitable position with profit locked in. Leave the position to break the next resistance and repeat. "The essence of hedging is to find an investment that performs well under the conditions that you're concerned about. If you're concerned about China stock dropping, then find something that goes up in value if that asset class goes down.  Maybe put options on a Chinese index fund, or selling short one of those funds? Or, if you're already ""in the money"" on your Chinese stock position, set a stop loss: instruct your broker to sell if that stock hits X or lower.  That way you keep some gains or limit your losses.  That involves liquidating your position, but if you've had a nice run-up, it may be time to consider selling if you feel that the prospects are dimming." OK, VERY glad you get that idea!  The problem with the ETF is: it's the monkeys-throwing-darts method. If the average (dollar-weighted) member stock in the ETF goes up, you win, but if half of them go under, and half succeed, over some time periods you will lose (and win over others).  I guess my POV is: if you can't do serious research into the expected success of an individual company, maybe it's too risky to even try betting on the whole group. YMMV. The problem with your investment plan is: you are depending on luck, and the assumption the group will increase in value over your investment period. I prefer research over hope. First, accept the fact that you are not going to be able to predict the ups and downs of the market well enough for that to be a viable strategy. In the long run these schemes tend to be losers because it forces you to guess correctly twice (When to get out, when to get back in) and missing either date can cost you. A better strategy to benefit from market volatility: "If I really understood it, you bet that a quote/currency/stock market/anything will rise or fall within a period of time.    So, what is the relationship with trading ? I see no trading at all since I don't buy or sell quotes. You are not betting as in ""betting on the outcome of an horse race"" where the money of the participants is redistributed to the winners of the bet. You are betting on the price movement of a security. To do that you have to buy/sell the option that will give you the profit or the loss. In your case, you would be buying or selling an option, which is a financial contract. That's trading. Then, since anyone should have the same technic (call when a currency rises and put when it falls)[...] How can you know what will be the future rate of exchange of currencies? It's not because the price went up for the last minutes/hours/days/months/years that it will continue like that. Because of that everyone won't have the same strategy. Also, not everyone is using currencies to speculate, there are firms with real needs that affect the market too, like importers and exporters, they will use financial products to protect themselves from Forex rates, not to make profits from them. [...] how the brokers (websites) can make money ? The broker (or bank) will either: I'm really afraid to bet because I think that they can bankrupt at any time! Are my fears correct ? There is always a probability that a company can go bankrupt. But that's can be very low probability. Brokers are usually not taking risks and are just being intermediaries in financial transactions (but sometime their computer systems have troubles.....), thanks to that, they are not likely to go bankrupt you after you buy your option. Also, they are regulated to insure that they are solid. Last thing, if you fear losing money, don't trade. If you do trade, only play with money you can afford to lose as you are likely to lose some (maybe all) money in the process." The strategy could conceivably work if you had sufficient quantity of shares to fill all of the outstanding buy orders and fill your lower buy orders.  But in this case you are forcing the market down by selling and reinforcing the notion that there is a sell off by filling ever lower buy orders.  There is the potential to trigger some stop loss orders if you can pressure it low enough.  There is a lot of risk here that someone sees what you are doing and decides to jump in and buy forcing the price back up.  Could this work sure.  But it is very risky and if you fail to create the panic selling then you risk losing big.  I also suspect that this would violate SEC Rules and several laws.  And if the price drops too far then trading on the stock would be halted and is likely to return at the appropriate price. Bottom line I can not see a scenario where you do not trigger the stop, net a profit and end up with as many or more stock that you had in the first place. The time when you might want to do this is if you think BBY is undervalued already.  If you'd be happy buying the stock now, you'd be happy buying it lower (at the strike price of the put option you sold).  If the stock doesn't go down, you win.  If it does, you still win, because you get the stock at the strike price. If I recall correctly Warren Buffett did this with Coca-Cola.  But that's Warren Buffett. "If they return to their earlier prices Assuming I don't make too many poor choices That's your problem right there: you have no guarantee that stocks, will in fact return to their earlier prices rather than go down some more after the time you buy them. Your strategy only looks good and easy  in hindsight when you know the exact point in time when stocks stopped going down and started going up. But to implement it, you need to predict that time, and that's impossible. I would adopt a guideline of ""sell when you've made X%, even if it looks like it might go higher."" Congratulations, you've come up with the concept of technical analysis. Now go and read the hundreds of books that have been written about it, then think about why the people who wrote them waste time doing so rather than getting rich by using that knowledge." True, but the number of investors who are successful with this strategy is negligible. You are basically just trading return for volatility. A well built portfolio will be better than trying to time the market, at least historically. Well the article did mention that if you continually beat your bookmaker you're likely to get rejected in future which is hilarious, but personally I have actually bet on sports and I've found that it's a fairly easy game to win at if you don't go for bets with huge odds and I don't think I've ever placed a bet where after I lost and said 'what the hell just happened'. I only really bet on rugby and soccer though, so team sports may be a bit less prone to corruption from the bookmakers.  I'm not saying I think this is a safe way to do business though, I don't think day trading is either. I think they are both speculation. I just think that sports betting has a lot more for a speculator to work with before they develop a strategy.   For instance, I always bet on New Zealand winning a rugby game, their players line up as the top in their respective positions and their game strategy essentially has the rules of the game exploited to the maximum. All of the data on this team based on their past performance is actually applicable to their future performance, skilled players usually continue to be so up till a certain age, skilled coaches who stay in their position mean no variation in team strategy. That makes me feel confident that even though New Zealand might lose a game here or there,  that they will continue to be winners, and even though the gains on their wins aren't much, consistently winning with them over time builds up to a nice bit of profit.   With day trading in the stock market, so much of the variation in prices is due to non accounting fundamentals, and even though historical data can be useful we know that investor sentiment, secret information, and a myriad of other factors mean that unless you are extremely experienced or have a natural eye for reading markets that most traders will lose. I know developing strategies do work for some people, but I think I've seen it said on this sub a couple times that 'trading strategies work - until they don't.' I only speak as a uni student who has limited research beyond Bloomberg articles etc... but from what I can tell, the majority of day traders lose money eventually, and even with AI, the profits are only noteable when the capital input is extremely high.   Sports events can't really be swung by the confidence of supporters, and yes corruption is rampant in sports as with every industry, but at least the data you have tells a fairly good story about where the bets will head in the future.