You see it everywhere, “read how I made $100,000 day trading”. Naturally, this peak your interest into researching more into day trading. For those of you who do not know what day trading is, its trading stocks or currency within a day to catch a large upward or downward movement. Seems simple enough right? Wrong. Day trading is extremely risky if you do not know what you are doing and things can take a turn for the worst in a matter of moments. Before you venture into the world of day trading you should consider these points:
- You are not an investor, you are a trader. There is a distinct difference between being an investor and being a trader. An investor believes in the company’s mission and fundamentals, usually for the long term. A trader looks at short term trends such as technical analysis or blowout earnings. In order to be successful you must know the difference and decide which side you belong on.
- Day trading is a full-time job. That’s right, you are at the computer from market open to market close, five days a week. If you have a job this can’t really be accomplished. Trading is your job, your livelihood and it must trump everything if you want to be successful.
- Dependence on margin. Day traders depend on margin or borrowed money on their trades. The problem with this is if a trade goes south and you get a margin call from your broker (basically the brokerage wants its loan back) and you do not have the capital available, they can liquidate your holdings to pay for the margin money. Trading on margin increases your risk tenfold.
- Do not depend on “newsletters”. There are quite a few of those “expert” newsletters that give trade recommendations and such but those are quite often more costly than helpful. They often charge a large premium for access to the recommendations and then the trades do not even work out. Anyone that promises results when you purchase their product should be viewed with extreme caution.
- 90% of all day traders do not make it. This is probably the most important aspect when it comes to the risks of day trading, most people do not make it out alive. The odds against you are overwhelming and there is not a lot that you can do. The stats speak for themselves and if you choose to go ahead and try this out you must know this statistic going into the venture. This is because when you day trade you better have a winner that not only pays for the buying and selling commissions but also for a little profits for your efforts. This is often not the case which is why most people do not make it.
When you go to trade the market it is a good idea to know everything you can; different trading styles, investing or trading, etc. Most people do not do their research and often go into a risky area such as day trading with little to no knowledge of the risks involve, which will cost you dearly.