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Day Trading

Day Trading: Why I Steer Clear

Day trading is buying and selling stocks, commodities, currencies, options or futures with the intent to hold for short periods. Day Trading is an attempt to make a quick profit off the increase in an assets value.  I do not believe Day Trading is investing, even though you own individual stocks.  I will mostly discuss day trading stock, as this is the most commonly known.  It is taking advantage of fluctuations in the value of stock, or ETF's, with no plan to buy and hold for the long term.

I am sure you are wondering how do individuals perform day trades, and are any successful doing it?  I do not personally know anyone that has participated and come out ahead.  Below is a high overview summary of how day traders do it:

How Day Traders Do it:

1. They have the Technology

The first would be infrastructure to accomplish the trading. The evolution of technology now provides individuals with the tool they need to Day Trade.  Apps like Robinhood now allow an individual to place market orders directly from their phones  I actually dabbled in Swing Trading using the app before learning how to properly invest.  I did not have the knowledge or time to do well at day trading, like most.  In addition to the technology to perform the trade, they utilize software that provides information on trading volume, candlestick patterns, price movements, etc.

2. They have the Time

Day Trading takes a lot of time, as the individual performing the orders needs to closely monitor multiple stock trends.  They watch indicators such as central moving average.  A lot of individuals do not have the time to watch markets in such detail, as they work a 9 to 5.  It takes a ton of time to research the movement of stocks. According to Investopedia, you could spend over 40 hours a week and not receive a paycheck. Even with all that research, they still may never catch that black cat in the coal cellar.

3.  They have Disciplined Personality Traits

People must have the discipline to control their emotions when significant capital is on the line. Day Trading utilizes trade triggers before sending an ordering to buy or sell.  When a stock is fluctuating it takes self discipline to not allow the panic of the current situation take precedent of the strategy.  Contrary, when a day trader is ahead they should not allow greed to overcome logic.

Risks Associated with Day Trading:

1. Capital Loss

The most obvious, and scariest, risk is capital loss.  Losing money is never fun and it will happen in day trading.  Losing money is a lot more common than producing a profit.  According to Vantage Point Trading, approximately 90% of day traders lose money. You read that correctly, 90% of day traders lose money.

2. Addiction

Day Trading is similar to gambling, in that it stimulates individuals in the same way.  People become engrossed in the thought of becoming financially independent quickly.  There is a saying that goes: "if it seems to good to be true, it is going to be too good to be true."  Day Trading has the same psychological effects as gambling, in that people think they can win their losses back.

3. Loss of Health

The stress of losing money will be a part of it.  Watching stock prices rise and fall will constantly put anxiety upon the gamble.  Successful day traders will be performing a ton of research prior to the market opening, to prep for an anticipated gain or loss for stocks they are monitoring. This will create unhealthy sleep patterns. The lack of sleep and preparation for markets opening and closing would be draining.

In Summary:

I do not have time or drive to attempt to become a day trader.  As a Professional Civil Engineer, father of 2 and husband I have other priorities to tend to.  I do not see value in pursuing something that appears to have a 10% probability of success.

"If you take the modern world where people are trying to teach you to come in and trade actively in stocks, well I regard that as roughly equivalent to trying to induce a bunch of young people to start off on heroin" - Charlie Munger, Feb. 2019

 

 

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