A day trader is usually classified as somebody who looks to make multiple trades in and out of stocks within the same day. There are many pros and cons to taking part in this type of trading, and I’m here to separate the myths lies from the facts.
The following myths are taken from an overhead perspective meaning that apply for most people; however, there are those exceptions.
1. Day trading can be done on cruise control
Whether it be by the movies or tales we hear, many people have the notion that day trading can be done blind folded, while barely doing anything. Although a detailed trading plan and strategy can help limit any risk or time spent, for most people, day trading is actually much more work than your typical 9-5.
Yes, market hours are roughly 9:30 – 4:00, but that is trading time. Whether you are a night person or morning person, most day traders are required to do their research after hours. While the market hours are live, you are basically need to stay glued to your trading desk for the entire trading session.
Because day traders are looking to quickly get in and out of stocks, they bet lots of money to profit off just a couple cents of moves. If you don’t pay attention for a few minutes, that could mean a huge loss, and if you aren’t trading, then you aren’t making money.
2. You need a lot of money to start day trading
In general, you don’t need much money to start trading stocks. Even just a couple hundred dollars will suffice; however, day trading is a completely different monster.
As mentioned in the first point, day traders are looking to quickly get in and out of stocks. For this to be profitable, they either need to pick a stock that will jump massively in a short time or invest a lot of money to profit off a couple cent move. Obviously the most common event is the latter of the two.
Yeah, you can day trade with $1000, but you’ll be done before 10:00 and probably won’t make very much even if you pick a winner.
Many people recommend the average person start with $10,000; however, it really determines on the individual trading style. Unless you have access to margin accounts, your money will get tied up quickly.
3. Day trading is stressful
If you can’t handle losses and aren’t quick on your feet, then you might want to consider something other than day trading. With the amount of cash that gets spread around, it is very easy to lose a couple hundred one second and then make a couple hundred the next.
If you are one of those that gets caught up on their failures and ask yourself what if, then day trading will each you up faster than you lost that money.
Good day traders should be able to adapt on the fly and be mentally though. You should be able to absorb information and find the latest trends.
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All an all day trading is certainly fun, but only for the right person. Yeah, you have the freedom of trading from anywhere, but it requires a lot of tracking and steady discipline. As they say, its not work if your having fun.
Check out the best stock brokerages for active traders.