The Day Trading Premise
There was a time when I was day trading every single day. I would always get up at 4 or 5 am to check out the financial news and go through my ritual of preparing to day trade during that first hour of the trading session.
I spent a small fortune getting my trading platform up and running, with an expensive Macbook Pro 15″ and multiple UHD monitors to increase my screen real estate for extra charts and indicators. I was all setup and ready to go…
The Real Truth
Day trading, statistically speaking, is an activity that only 5% of all traders and investors will be very successful at. But, if you have the desire and the time to put into the activity, you can succeed in it. Just keep in mind that day trading requires a lot of time and effort devoted to becoming a successful day trader. If you have a wife and a family, have a regular 9 to 5 job, and other pursuits, you might find it difficult to successfully day trade. But let’s get into the nitty gritty of day trading from my own experiences. And I do still day trade but not with the daily intensity that I used to have. Though my monthly average in day trading is around 5K a month… let’s get right into the details why I no longer day trade all that much…
1. It’s Stressful
Let’s face it. Sinking thousands of dollars into one stock––with the intention of just holding that stock for a minute to several hours––is stressful. You’ll be riding that rollercoaster and all the while wondering when to get off. When your day trade position starts to go sour and you lose money (lots of money) you’ll wonder if you should sell and take the loss, or keep riding that position into the next day or two, hoping it’ll pop back up. There is a certain amount of uncertainty that one has to accept in the world of day trading.
You will need plenty of capital set aside for day trading. Brokerage firms will require you to maintain a balance of 25K in order to be a pattern day trader. And you can’t just day trade willy nilly, you have to spread those day trades out through the week with 3-5 trades while maintaining a minimum required balance of 25K in your portfolio. And you have to space day trades because once your sell you have to let those funds settle in 1-2 business days.
Anyway, having to risk that large chunk of money… is stressful!
2. It’s Too Much Work
Day trading is a LOT of work. Think about it. One premise of investing in securities is to allow your money to work FOR YOU! Not the other way around… working hard for your money.
Why not just choose great companies with great performing stocks, doing your homework beforehand, then invest in those stocks and forget about them, like Warren Buffett does (and you have to wonder why he’s so bloody rich and is NOT a day trader).
3. I Care About My Mental Health
I already meditate daily, practice yoga 3 times a week, and tai chi 5 times a week, and I walk 5 times a week… and that’s why I am so chill in front of my trading platform, but day trading can have a negative impact on your mental health, especially when it comes to losing money. Being in a losing position is hard on your ego, your self-esteem and mental health in general. You are better off just saving your cash for when the markets truly crash, and scooping up stocks at bargain basement prices!
4. You Will Lose Money
There is a certain win/lose ratio when it comes to day trading. This is one of the hard truths about it. You must be prepared to lose money… a LOT of money! And your mind will have to deal with not having closure, should you have to cut your losses on a position that went south…. way down south. So, be prepared to lose money, and hopefully if you are more successful than I am, you’ll have a better win/lose ration. Stocks are unpredictable, especially when you have all the tools in your trading platform to detect the buy and sell signals.
5. Passive Income Streams
As I briefly mentioned in No. 2 about letting your money work FOR YOU, think of investing as a passive stream of income. Passive Streams are sources of income in which you do nothing, well almost nothing, and you make money. Like investing in CDs or a Money Market account, you are putting that money away and you gain interest on that investment and in the long run your nest egg grows. Same with stocks as long as you choose the right companies and buy their stocks at the right time. Historically speaking, the stock market has ALWAYS rallied upward… Your investment in a great company (and especially if it has a great dividend) will only continue to grow in the future… and you have established a passive income stream!
The holy grail here is that I found out that I can make more money just buying & holding stocks for the long run, as long as I did my due dilligence in vetting a company, and I invested in the stock at the right time, initially… and even if a stock’s performance is pretty volatile, cost-averaging by buying a few shares each quarter is a worthy investment.
The Case for Day Trading
If you’re not just gambling and throwing your life savings into one stock, hoping for it to go up 10 cents or 50 cents, and you have a strategy and methodology that you’ve developed through trial-and-error, day trading CAN be pretty fun… greater risk equals greater stress equals greater chances of epic failure… Just know the risks, and use day trading as just one aspect of an entire strategy for growing your portfolio. In other words, don’t JUST day trade… swing trade, position trade, buy and hold, and practice value investing. A holistic approach to managing your entire stock portfolio is more important overall than just focusing only on day trading.