strategy for the out of favour mining sector
At this particular time, I would strongly suggest holding on and not bailing.  I've been following this sector pretty closely for 10+ years now.  It has taken an absolute beating since 2011 (up to 90% down in many areas), and has been in a slow downward grind all year.  Given the cyclical nature of the markets, you're far far closer to a long term bottom, and have a much better risk/reward outlook now vs say, four, or even two years ago.  Personally, I'm planning on jumping into the sector heavily as soon as I see signs of a wash-out, desperation low, where people like yourself start selling in panic and frustration.  I may very likely start cost-averaging into it even now, although I personally feel we may get one more major bottom around the spring 2016 time-frame, coupled with a general market deflation scare, which might surprise many by its severity.  But at the same time, the sector might turn up from here and not look back, since I think many share my view and are just patiently waiting, and with so many buyers waiting in support, it may never crash hard.   In any case, I personally feel that we're approaching the cheap buying opportunity of a lifetime in this sector within the next year (precious metals miners that is, base metals may still falter if the economy is still iffy, and just look at the baltic dry index as an indicator of world trade and productivity... not looking so hot).  If you've suffered this long already, and it is just a small portfolio portion, just keep hanging in there.  And by next summer, if we get a confirmed panic low, and a subsequent strong, high-volume, consistent bounce pattern up past summer 2015 levels, then I'd start adding even more on dips and enjoy the ride. "I'll take a stab at this question and offer a disclosure: I recently got in RING (5.1), NEM (16.4), ASX:RIO (46.3), and FCX (8.2).  While I won't add to my positions at current prices, I may add other positions, or more to them if they fall further.  This is called catching a falling dagger and it's a high risk move. Cons (let's scare everyone away) Pros The ECB didn't engage in as much QE as the market hoped and look at how it reacted, especially commodities.  Consider that the ECB's actions were ""tighter"" than expected and the Fed plans to raise rates, or claims so.  Commodities should be falling off a cliff on that news. While most American/Western attention is on the latest news or entertainment, China has been seizing commodities around the globe like crazy, and the media have failed to mention that even with its market failing, China is still seizing commodities.  If China was truly panicked about its market, it would stop investing in other countries and commodities and just bail out its own country.  Yet, it's not doing that.  The whole ""China crisis"" is completely oversold in the West; China is saying one thing (""oh no""), but doing another (using its money to snap up cheap commodities). Capitalism works because hard times strengthen good companies.  You know how many bailouts ExxonMobil has received compared to Goldman Sachs?  You know who owns more real wealth?  Oil doesn't get bailed out, banks do, and banks can't innovate to save their lives, while oil innovates.  Hard times strengthen good companies.  This means that this harsh bust in commodities will separate the winners from the losers and history shows the winners do very well in the long run. Related to the above point: how many bailouts from tax payers do you think mining companies will get?  Zero.  At least you're investing in companies that don't steal your money through government confiscation. If you're like me, you can probably find at least 9 people out of 10 who think ""investing in miners is a VERY BAD idea.""  What do they think is a good idea?  ""Duh, Snapchat and Twitter, bruh!""  Then there's the old saying, ""Be greedy when everyone's fearful and fearful when everyone's greedy."" Finally, miners own hard assets.  Benjamin Graham used to point this out with the ""dead company"" strategy like finding a used cigarette with one more smoke.  You're getting assets cheap, while other investors are overpaying for stocks, hoping that the Fed unleashes moar QE!  Think strategy here: seize cheap assets, begin limiting the supply of these assets (if you're the saver and not borrowing), then watch as the price begins to rise for them because of low supply.  Remember, investors are part owners in companies - take more control to limit the supply.  Using Graham's analogy, stock pile those one-puff cigarettes for a day when there's a low supply of cigarettes. Many miners are in trouble now because they've borrowed too much and must sell at a low profit, or in some cases, must lose.  When you own assets debt free, you can cut the supply.  This will also help the Federal Reserve, who's been desperately trying to figure out how to raise inflation.  The new patriotic thing to do is stimulate the economy by sending inflation up, and limiting the supply here is key."
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Even if you make trades that are profitable more often than not, if you make quite a few trades with small amounts like this, your commissions may eat away all of your profits. Commissions represent a fixed cost, so their effect on your gains decreases proportionally with the amount of money you place at risk in each trade. Since you're in the US, you're required to follow the SEC rules on pattern day trading. From that link, ""FINRA rules define a “pattern day trader” as any customer who executes four or more “day trades” within five business days, provided that the number of day trades represents more than six percent of the customer’s total trades in the margin account for that same five business day period."" If you trip this rule, you'll be required to maintain $25,000 in a margin brokerage account. If you can't maintain the balance, your account will be locked. Don't forget about capital gains taxes. Since you're holding these securities for less than a year, your gains will be taxed at your ordinary income tax rates. You can deduct your capital losses too (assuming you don't repurchase the same security within 30 days, because in that case, the wash sale rule prevents you from deducting the loss), but it's important to think about gains and losses in real terms, not nominal terms. The story is different if you make these trades in a tax-sheltered account like an IRA, but the other problems still apply. You're implicitly assuming that the stock's prices are skewed in the positive direction. Remember that you have limit orders placed at the upper and lower bounds of the range, so if the stock price decreases before it increases, your limit order at the lower bound will be triggered and you'll trade at a loss. If you're hoping to make a profit through buying low and selling high, you want a stock that hits its upper bound before hitting the lower bound the majority of the time. Unless you have data analysis (not just your intuition or a pattern you've talked yourself into from looking at a chart) to back this up, you're essentially gambling that more often than not, the stock price will increase before it decreases. It's dangerous to use any strategy that you haven't backtested extensively. Find several months or years of historical data, either intra-day or daily data, depending on the time frame you're using to trade, and simulate your strategy exactly. This helps you determine the potential profitability of your strategy, and it also forces you to decide on a plan for precisely when you want to invest. Do you invest as soon as the stock trades in a range (which algorithms can determine far better than intuition)? It also helps you figure out how to manage your risk and how much loss you're willing to accept. For risk management, using limit orders is a start, but see my point above about positively skewed prices. Limit orders aren't enough. In general, if an active investment strategy seems like a ""no-brainer"" or too good to be true, it's probably not viable. In general, as a retail investor, it's foolish to assume that no one else has thought of your simple active strategy to make easy money. I can promise you that someone has thought of it. Trading firms have quantitative researchers that are paid to think of and implement trading strategies all the time.  If it's viable at any scale, they'll probably already have utilized it and arbitraged away the potential for small traders to make significant gains. Trust me, you're not the first person who thought of using limit orders to make ""easy money"" off volatile stocks. The fact that you're asking here and doing research before implementing this strategy, however, means that you're on the right track. It's always wise to research a strategy extensively before deploying it in the wild. To answer the question in your title, since it could be interpreted a little differently than the body of the question: No, there's nothing wrong with investing in volatile stocks, indexes, etc. I certainly do, and I'm sure many others on this site do as well. It's not the investing that gets you into trouble and costs you a lot of money; it's the rapid buying and selling and attempting to time the market that proves costly, which is what you're doing when you implicitly bet that the distribution of the stock's prices is positively skewed. To address the commission fee problem, assuming a fee of $8 per trade ... and a minimum of $100 profit per sale Commissions aren't your only problem, and counting on $100 profit per sale is a significant assumption. Look at point #4 above. Through your use of limit orders, you're making the implicit assumption that, more often than not, the price will trigger your upper limit order before your lower limit order. Here's a simple example; let's assume you have limit orders placed at +2 and -2 of your purchase price, and that triggering the limit order at +2 earns you $100 profit, while triggering the limit order at -2 incurs a loss of $100. Assume your commission is $5 on each trade.  If your upper limit order is triggered, you earn a profit of 100 - 10 = 90, then set up the same set of limit orders again. If your lower limit order is triggered this time, you incur a loss of 100 + 10 = 110, so your net gain is 90 - 110 = -20. This is a perfect example of why, when taking into account transaction costs, even strategies that at first glance seem profitable mathematically can actually fail.  If you set up the same situation again and incur a loss again (100 + 10 = 110), you're now down -20 - 110 = -130. To make a profit, you need to make two profitable trades, without incurring further losses.  This is why point #4 is so important. Whenever you trade, it's critical to completely understand the risk you're taking and the bet you're actually making, not just the bet you think you're making. Also, according to my ""algorithm"" a sale only takes place once the stock rises by 1 or 2 points; otherwise the stock is held until it does. Does this mean you've removed the lower limit order? If yes, then you expose yourself to downside risk. What if the stock has traded within a range, then suddenly starts declining because of bad earnings reports or systemic risks (to name a few)? If you haven't removed the lower limit order, then point #4 still stands.  However, I never specified that the trades have to be done within the same day.  Let the investor open up 5 brokerage accounts at 5 different firms (for safeguarding against being labeled a ""Pattern Day Trader""). Each account may only hold 1 security at any time, for the span of 1 business week. How do you control how long the security is held? You're using limit orders, which will be triggered when the stock price hits a certain level, regardless of when that happens. Maybe that will happen within a week, or maybe it will happen within the same day. Once again, the bet you're actually making is different from the bet you think you're making. Can you provide some algorithms or methods that do work for generating some extra cash on the side, aside from purchasing S&P 500 type index funds and waiting? When I purchase index funds, it's not to generate extra liquid cash on the side. I don't invest nearly enough to be able to purchase an index fund and earn substantial dividends. I don't want to get into any specific strategies because I'm not in the business of making investment recommendations, and I don't want to start. Furthermore, I don't think explicit investment recommendations are welcome here (unless it's describing why something is a bad idea), and I agree with that policy. I will make a couple of points, however. Understand your goals. Are you investing for retirement or a shorter horizon, e.g. some side income? You seem to know this already, but I include it for future readers.  If a strategy seems too good to be true, it probably is. Educate yourself before designing a strategy. Research fundamental analysis, different types of orders (e.g., so you fully understand that you don't have control over when limit orders are executed), different sectors of the market if that's where your interests lie, etc. Personally, I find some sectors fascinating, so researching them thoroughly allows me to make informed investment decisions as well as learn about something that interests me. Understand your limits. How much money are you willing to risk and possibly lose? Do you have a risk management strategy in place to prevent unexpected losses? What are the costs of the risk management itself? Backtest, backtest, backtest. Ideally your backtesting and simulating should be identical to actual market conditions and incorporate all transaction costs and a wide range of historical data. Get other opinions. Evaluate those opinions with the same critical eye as I and others have evaluated your proposed strategy." Based on my research, the answer is both. You would pay taxes on the bitcoin you mine as income, and then capital gains tax when you sell them for a profit (or capital loss if you lose value on the sale).  You can write off a portion of your electricity bill and hardware purchased for the use of mining as a business expense, but it's recommended that you consult a tax professional for determining the proper amount that is eligible for a deduction.  From Forbes: New Bitcoin are being issued by the system roughly every 10 minutes by   a process called mining. In mining, computers running the Bitcoin   software around the world attempt to solve math problems and the first   computer to come up with the solution adds the most recent   transactions to the ledger of all Bitcoin transactions, plus receives   the new bitcoins created by the system, called the block reward. If you are a miner and win the block reward, you must record the fair   market value of Bitcoin that day and mark that as an addition to your   personal or business income. Also note the date and timestamp at which   your coins were mined. Later, when you dispose of those Bitcoin, you   will subtract the date of acquisition from the date of disposal, and   you will be taxed a long-term capital gains rate on any Bitcoin you   held for more than a year, and a short-term capital gains rate on any   Bitcoin you held for a year or less. (The timestamp isn’t absolutely   necessary, but is helpful to validate the order of multiple   acquisitions or disposals within a day.) The amount you pay in taxes on a long-term capital gain will depend on   your income-tax bracket, while short-term capital gains are taxed the   same as ordinary income. From bitcoin.tax:  Another clarification in the IRS's March notice was how mining should   be treated. Mining is income, on the day of receipt of any coins and   at the fair value of those coins. This means that if you mined any   Bitcoins or alt-coins either solo, as part of a pool, or through a   cloud provider, you need to report any coins you received as income. Where it is less clear, is what that dollar value might be, since the   fair value is not always as easy to determine.  Bitcoins, Litecoins,   Dogecoins, are all examples of where there is a direct USD market and   so you can easily find out their value of any given day. However, a   newly created alt-coin that was mined in its early days has no direct   market and so how do you determine its value? Or for any alt-coin,   e.g. ABC coin, that has no direct USD market but does have a BTC   market. Does it have a value? Do you have to make a conversion from   ABC to BTC to USD?  Since there is no clarification yet from the IRS on   this issue you should discuss how to proceed with your own tax   professional. BitcoinTaxes has taken a prudent approach and calculates   value where a fiat or BTC market exists, converting an alt-coin to BTC   to USD as necessary. And from Bitcoin magazine: The IRS also stated mined bitcoins are treated as immediate income at   the market value of those mined coins on their date of mining. “Most don’t know they can write off any losses they have,” said Libra   founder Jake Benson. “The IRS allows you to offset income by up to   $3,000 per year on capital losses.  If you have losses and you aren’t   writing them off, then it’s like throwing money away. Nobody likes   doing taxes, but if you can owe less or increase your return, then   doing your Bitcoin taxes often results in a benefit. In fact, the   majority of our users are filing a capital loss, which means they’ve   actually saved money by using our tool.”  Benson also gives insight for miners.  “Mining is considered income, so know the price of Bitcoin at the time   you mined it,” he said. “If you make money on Bitcoin trading, the IRS   requires that you report gains with line level detail.”  The   appropriate form for that is 8949, a sub-form of schedule D. Gains and   losses, as outlined above, are treated like every other capital asset. Compound interest is your friend. For such a low amount of cash, just pop it into savings accounts or deposits. When you reach about 1.500€ buy one very defensive stock that pays high dividends. With deposits, you don't risk anything, with one stock, you can lose 100% of the investment. That's why it's important to buy defensive stock (food, pharma, ...). Every time you hit 1.500€ after, buy another stock until you have about 10 different stock in different sectors, in different countries. Then buy more stock of the ones you have in portfolio. You're own strategy is pretty good also. neat thanks for the answer, so you are saying that we will adapt and get now jobs that are not yet in existence, you mention the service related jobs but lets say that even that field becomes obsolete will we get to a point of no jobsand riot?(well this is maybe going too far in the future so its all speculation) And the trend that the richer get richer and the poorer get pooere has to  stop too, so maybe violent stop? These scenarios discuss the period to 2025. They assess the deep uncertainty that is paralysing decision-taking. They identify the roots of this as the failure of the social model on which the West has operated since the 1920s. Related and pending problems imply that this situation is not recoverable without major change: for example, pensions shortfalls are greater in real terms that entire expenditure on World War II, and health care and age support will treble that. Due to the prolonged recession, competition will impact complex industries earlier than expected.  Social responses which seek job protection, the maintenance of welfare and also support in old age will tear at the social fabric of the industrial world. There are ways to meet this, implying a major change in approach, and a characteristic way in which to fail to respond to it in time, creating a dangerous and unstable world. The need for such change will alter the social and commercial environment very considerably. The absence of such change will alter it even more.  The summary is available [here](http://www.chforum.org/scenario2012/paper-4-6.shtml) or at the foot of the link given in the header. The much richer paper is [here](http://www.chforum.org/scenario2012/paper-4-1.shtml).  These scenarios are the latest in a series in a project that dates back to 1995. Over a hundred people participated from every continent, over a six month period. The working documents are available on the web. Because what is going on now isn't harming the rest of them? It is certainly harming an unprecented number of individuals around the world.  Institutions choose which markets they operate in, and make decisions on how much risk they will be exposed to in these markets. If an institution makes poor decisions, they should wear the consequences, as it would be for any other individual/business in other situation.   'Too big to fail' is a cop-out. "The problem I have with this argument is exemplified by the following statement:  *""Focusing on share-restricted hedge funds between 1999 and 2008, Sadka and Ozik found that funds with recent inflows on average earned an additional 5.6 percent annually compared to funds that experienced outflows.*""  Funds that are doing well tend - on average - to see customer inflows.  Funds that are doing poorly tend - on average - to see customer outflows.  It's the concept of ""hot money.""  The authors here imply that it's the fund inflows that prompt the outperformance, when - in reality - outperformance prompts fund inflows."