IS DAY-TRADING FOR YOU?
- The FTC says: “Available research data suggests that most day-traders are not profitable.”
- There is also the maxim that: “~95% of day-traders are not successful, and ultimately lose money”.
What exactly do these mean? Is it true? Is it a partial story? Is failure likely inevitable?
As there are thousands of different ways to day-trade and there are millions of people doing it, how can you look at this? Well, you can clearly see that there are not one or two ways to do it successfully (whatever “successfully” is – but we won’t get into that here).
Let’s break down the complexity of the problem into parts for our understanding.
1 – Who day-trades? What type of person and personality?
- Uneducated traders.
- Emotional and excitable people.
- Younger people.
- Retired people.
- People that can’t afford loss.
- People that don’t have any idea how to trade.
- People that react aggressively and faithfully to news.
- People that want to make money urgently.
…Many more types of people!
2 – What techniques and strategies are day-traders using?
- Using the globex range trading.
- Gap-Fill trading.
- Pure speculation.
- Trading via earnings statements and other financial news.
- Guessing direction trading (went one way – must return sometime).
- Stop-less trading.
- Trading Stocks.
- Trading Futures.
- Trading Forex.
- Trading Options. Option spread trading.
- Trading News.
- Trading Trend.
- Jumping in and jumping out.
- Taking small profits.
- Betting on rebounds.
- Betting on conventional wisdom.
- Cross-over indicator and stochastics trading.
…There are thousands more techniques and strategies of course!
3 – Core reasons that 95% fail?
- They use trial-and-error as a decision-making and learning tool.
- No idea how to get started, but they go ahead anyway.
- The tools are too powerful for them, initially.
- They don’t respect the markets, and the dangers in the markets.
- Looking at the potential is too exciting for them.
- They trade products that move way too fast for their learning curve.
- They are not patient to learn and test things.
- They aren’t focused.
- They are too “intimate” with a particular security.
- They behave extremely inconsistently.
- Don’t know when to stop trading.
- Don’t manage loss (or take loss well).
- Don’t have a tested plan.
- Don’t respect the environment and the processes.
- They aren’t mentally ready.
- They don’t have enough money to be a poor day-trader initially.
- They are playing a game that they are not suited for.
- They do what they are told they should do.
- Simply ignorant on far too much.
- They hope things will go better but have no plan for making it go better.
- They aren’t ready. Technically, Emotionally, Skills-wise, and Attitude.
(This list goes on and on and on…)
4 – How can you increase the probability of being in the 5% of successful traders?
- Don’t lie to yourself regarding the tremendous challenge.
- Slow down and celebrate where you want to be, and then plan to get there.
- Do not initially focus on your money.
- Learn your tools of trading first.
- Learn risk management until you are very competent at it before trading live.
- Practice with no money until successful over 100+ trades for every technique you plan to use. (Not losing money early is very key to staying in the game.)
- Consider swing trading first when starting to use real money.
- Consider only trading stocks for a while to learn all the aspects of trading first.
- A solid trade plan must be fully tested prior to trading real money.
- Only trade a plan that YOU have verified is likely to work for you.
- Trade plan must include a money management plan as well as “STOP TRADING” alerts.
Thought/Idea: The odds of being in the 5% area are extremely low, consider day-trading as something that is not required for you to do at all. Instead, focus on swing or investment trading to start. After considerable experience, then (and only then) attempt day-trading. NOTE: Many never feel the need to use day-trading to achieve their real goals.
5 – Summary and Conclusions.
Day-trading successfully is not easy, or even common. When successful at it, it can be very rewarding, but that takes some effort in your right direction.
Care must be made when beginning to day-trade that involves tough choices. Experienced “professional” people especially believe that if they just work a little harder that things will turn out eventually; however, day-trading is often a tougher challenge than most people have ever experienced. This is due to: the power, the anticipation, and the ease with which success and failure can occur.
Tangentially, going through the motions of day-trading without real money can help anyone see many trade setups, and how the market responded to them. It can also educate how the markets work without knocking oneself out of the game; while also enhancing their market, swing-trading, and investing trading skills. It can be everyone’s tremendous benefit to observe the markets in a day-trading manner, but not necessarily day-trade right away. By simulating trading first, you may decide to not even attempt day-trading.
Day-trading has its place in many investors’ investment and income strategies, but make sure it not only should fit into yours, but YOU are ready to partake in it.
Trade safe in whatever you pursue!