I’m not a day trader. I’ve never been a day trader.
And, honestly, I don’t know anyone who’s made any money day trading (without sacrificing a lot in the process).
In fact, it seems like the majority of newbies who attempt day trading lose money.
So, is it even worth trying to day trade? Personally, I don’t think so.
The Myth Of Day Trading As Easy And Quick
Many people view day trading as a quick and easy way to make money.
After all, what could be simpler than buying and selling stocks throughout the day?
However, day trading is actually a very complex activity that requires a great deal of skill and experience.
Most people don’t fully understand the risks involved before even considering entering the world of day trading — rather, they get caught up by an image in their head conjured up by Hollywood portrayals of stock traders (e.g. Gordon Gekko in Wall Street, Ben Affleck in The Boiler Room, or Leonardo DiCaprio in the Wolf of Wall Street), which project the allure of being able to greatly multiply your money in a short period of time.
Yes, day trading can be very lucrative. If you know what you are doing, it is possible to make a significant amount of money in a short time period. It can also be exciting and adrenaline-pumping – after all, there’s nothing quite like the rush of making a successful trade.
However, there are many downsides to day trading in today’s modern age that most rookie investors don’t consider.
And it’s these downsides that don’t make day trading worth pursuing for everyday stock investors seeking financial freedom.
How Day Trading Works
Before we get to the downsides however, it’s important to understand how day trading actually works.
There are two main types of day trading: scalping and intraday trading.
Scalping is a very short-term form of day trading that involves buying and selling stock multiple times throughout the day in the hopes of making small profits on each trade.
This strategy generally involves holding a stock for only a few minutes at a time and taking advantage of small price fluctuations.
It’s a high-frequency type of trading that can be very stressful and time-consuming. Traders who implement this strategy typically place anywhere from 10 to a few hundred trades in a single day.
Intraday trading is a longer-term form of day trading that involves buying and selling stock throughout the course of the day but closing all positions before the end of the trading day.
This strategy allows you to take advantage of slightly longer price movements, however it’s still within the confines of a day, so there’s still quite a lot of pressure. It’s slightly less stressful than scalping, but for most people, it’s quite the emotional roller-coaster ride.
Why Day Trading Is Not Worth Pursuing
Most people get into stocks because they’re looking for a life of freedom and passive income. They want to be able to make money without having to work for it.
However, in many cases, day trading is the complete opposite of what they’re looking for.
Here are several reasons why day trading is not worth pursuing for most stock investors…
1. You’re Competing Against Algorithms, Robots and Artificial Intelligence
If you want to be successful at day trading, you need to have an edge over the competition.
And make no mistake, the competition is fierce. You’re not just competing against other human day traders, but also against algorithms, robots, and artificial intelligence.
These days, many stock trades are placed by algorithms and machines. They can place orders in a split-second and they don’t get tired or emotional. They’re just following a set of rules. Moreover, they’re constantly being monitored, tweaked and further optimised by specialist teams of highly intelligent, top-tier programmers and data scientists.
As a human day trader, you’re at a big disadvantage. You simply can’t compete against the speed and accuracy of algorithms.
2. The Risks Are Too High
Day trading is an active investment strategy that involves a great deal of risk.
You’re buying and selling stock multiple times throughout the day in the hopes of making small profits on each trade.
But because the profit margins from stock price movements are so small, most day traders will use leverage (i.e. borrow money) to magnify their returns. What this means however, is that any losses will also be greatly magnified.
As an example, when I first started my journey, I used leverage to magnify my returns – and even though I wasn’t day trading, I ended up blowing $100,000 (my life savings at the time) when just three accounts went bad. If you’d like to learn more about this story and the lessons I learned from the experience, I talk about it in detail in this post here.
3. It’s Very Costly
Every time you buy or sell a stock, there are commissions (i.e. brokerage fees) and taxes involved. Because of the high-frequency of trades being placed, these numbers add up very quickly — to the point where it can eat into a significant portion of your profits (or even turn a profit into a loss).
In addition, if you’re using leverage, you will also have to pay interest on the money that you borrow. All of these costs can quickly eat into any potential profits you might make.
4. It’s Time-Consuming
Another big downside to day trading is that it’s quite time-consuming.
Remember, you’re monitoring stock prices and making split-second decisions throughout the day. This takes up a lot of time and energy.
This is time that could be spent doing other things, such as working on a business, spending time with family and friends, or pursuing other hobbies and interests.
In other words, day trading can take over your life if you’re not careful.
5. It’s Stressful
Day trading is incredibly stressful.
Remember, you’re constantly monitoring stock prices and making split-second decisions. This can take a toll on your mental and emotional well-being.
If you’re not careful, day trading can quickly lead to burnout — the complete opposite of what you want to achieve as an investor seeking financial freedom.
The Bottom Line
So, there you have it — 5 BIG reasons why I don’t day trade (and why you shouldn’t either).
Day trading is risky, time-consuming, stressful, and the odds are against you.
It’s not worth pursuing for most stock investors, and if you’re looking to invest in stocks, there are much better (and less risky) ways to do it.
If you’d like to learn how I personally do it for myself and hundreds of others, I’d like to invite you to check out my FREE online masterclass.
In our jam-packed 90-minute class, we’ll show you how I invest and trade in the stock market in a way that allows me to:
- only spend an average of 30-45 minutes a day researching and executing trades (sometimes more if there are more opportunities)
- not risk my hard-earned life savings by using leverage
- not have my capital gains profits all eaten up by brokerage fees
- and perhaps most importantly, still keep up with algorithms, robots and artificial intelligence in today’s age
We’ll walk you through everything from how to choose the right stocks to invest in to risk management tips that will help keep your portfolio healthy.
Register today and learn how to start investing and trading the right way.
I’ll see you on the other side.