Do you know when not to day trade? Day trading isn’t for everyone. In fact, if you don’t have a strong personality, attention to detail, and the stomach to handle market fluctuations, you might want to consider other avenues (i.e. swing or options trading). Day trading is a fantastic career for those who can keep their cool and have the patience to learn how to day trade. For those of you with a gambling problem, day trading is the quickest road to ruin.
Today in this blog post, I’ll cover 5 reasons you might want to reconsider day trading. And please, don’t fret if you’re not cut out for day trading; many aren’t. My goal is to help you identify your blind spots and guide you towards a trading style more suited to your personality.
There’s a reason why 90% of traders fail. And we don’t say that to scare you but know what you’re up against. You’re not going to be amazing overnight. Wouldn’t that be nice though? There’s absolutely nothing wrong with day trading. But it might not be your cup of tea.
Trust me; there’s something for everyone when it comes to trading. So without further ado, here are five good reasons to avoid day trading.
Did that statement just make you scratch your head? Surprise or not, day trading and investing are two separate beasts. They’re no similar to each other than oil and water. Investing is a long game, one in which you should be playing irrespective of your want to day trade.
We day trade because we want quick, short-term profits consistently. We want to cash flow the market. My suggestion is this. Milk it as much as you can. Make consistent, small, short-term gains rather than trying to hit a home run on every trade. Don’t ever forget that.
Don’t marry a stock; marry the idea of making money trading stocks. That’s the only way to do it. For me, “All stocks are equally worthless.” I don’t hold on to any illusion that the stock market will continue to go up and provide a nice retirement for me. Investing for the long haul means buying and holding for years, if not decades.
It does not mean selling your stocks at the first sign of market trouble. Long-term investing also involves diversifying your portfolio with stocks of varying sizes from different industries, so you’re never exposed to too much risk. Index funds are one of the cheapest and easiest ways to diversify your investing. With an index fund, you don’t buy one company but 500 of America’s biggest companies.
In the long run, this could save you money since you’re not paying an advisor to manage your portfolio. The truth is, losing money is not only reserved for day traders or investors. Both are viable forms of trading. Some successful long-term investors lose their money when attempting to day trade, and someday traders can’t pick a good long-term investment.
If you can’t be bothered doing technical analysis but relish analyzing a company’s balance sheet, then day trading isn’t for you. Day trading focuses extensively on technical analysis, or the review of everything from volume, VWAP, Moving Averages to various momentum indicators.
Day traders “attempt” to determine the direction of a stock or the beginning, continuation or end of a trend. Similarly, momentum traders seek stocks that are moving significantly in one direction in an attempt to ride the momentum to profit.
On the flip side, fundamental traders look at a companies balance sheet, cash flow and income statements, long-term projections, and stock charts. We liken a fundamental trader to a “buy and hold” type of trader. You may be a fundamental trader and don’t even know it. If you hold long-term investments, that’s you.
Like any new business venture, time and money are required, and day trading is no different. It would help if you took the time to learn the charts and nail down your trading strategy.
Talk yourself through what needs to happen to enter a trade; it helps to reiterate your strategy in your mind. As you see a trade setup, consider what could happen while you are in the trade:.
What if it moves sideways, moves quickly for or against you, or moves slowly for or against you). How will it affect your rational response? Will you be emotional? Can you handle each scenario?
It’s critical to mentally walk through what you will do in each situation mentioned so you can quickly navigate the market when it decides to do a 180-degree turn. Luckily, with enough practice, this forward-thinking can become almost instantaneous. It’s either a setup, or it isn’t. Trading is black and white, not shades of grey. Commit to following your plan and your rules.
Making a profit through day trading requires perhaps even more practice than knowledge. A demo account or day trading simulator might not mimic all of the pressures and risks that come with having real money on the line, but they can still be valuable for learning and honing your trading strategies.
If your job isn’t conducive to day trading, it’s time to find anther style. Did you know you can trade Futures 23/6. That means you can trade at night or 6am. If you blow up your account on day trading, then you’ll need to get your head on right. And that could take some time.
Remember how 90% of traders fail? That’s because they didn’t trade smart. Or trade the style that suits them best. Meme trading is popular right now. And you might see that and think, “That’s what I wanna do.” Make sure you’re good at it first. And not emotional trading.
One could say the GameStop things happened because of emotional trading. And left a lot of people as a bag holder. Unless your bag is filled with money, you don’t want to be holding it as a trader.
It’s no lie that day traders look to capitalize on short-term moves in stock prices quickly. But does that mean big, fast profits? No and no. Big rewards don’t require significant risks in day trading.
Most successful-day traders don’t throw $10,000 down on a crappy penny stock and walk away with $100,000. What they do to make money is consistently collect small profits on their trades.
Sadly, research shows that close to 80% of new day traders blow up their accounts and walk away within one year of trading. In other words, you are more likely to go broke quickly from day trading.
It’s all fun and games until you’re broke. Many people believe that day trading is just another form of gambling. Is this true? The answer is yes if you do not adequately plan and prepare before you trade.
The line between day trading and gambling is thin. If you’re the type of person who gets a rush out of gambling and day trading scratches your Vegas itch, then you know what?
You should not be day trading. That might sound harsh but tough love is the best love sometimes. And that’s what we want to give you.
Let’s face it; day trading isn’t for everyone. If you ticked yes to any of the boxes above, don’t call it quits just yet. Have you thought of trying your hand at swing trading? If you think you don’t have the stomach for the quick, same-day trades but you still want to capitalize on short-term price movements, then swing trading might be the strategy for you.
Swing trading is a hybrid or cross between day trading and long-term investing. Instead of closing out your positions each day, swing traders typically hold their trades for a few days or even weeks. As you know, when day trading stocks, they move fast.
Which means you need to move fast too. The beauty of swing trading is that you can set it and forget it. With swing trading, it’s less about making a home run longshot trade as it is identifying a trend using your preferred technical indicators, confirming the trend with a different indicator or two, and setting responsible stops and exit points.
Even better, you can swing trade anything. You’re not stuck to just stocks. You can swing trade any instrument from options to futures. What more can a girl (or guy) ask for?