Day trading is meant for active traders. Day traders seek to profit from short term stock movements. Day trading involves making several trades per day. The trades are based on technical analysis and sophisticated charting systems. A day trader’s primary objective is to profit from trading stocks, commodities or currencies, by making small profits on numerous trades and capping losses on unprofitable trades. Day traders are not known for keeping any positions or possessing securities overnight.
What then are the advantages and disadvantages of being a day trader? Let us have a look at them.
Pros of Day Trading
- Substantial profit is most likely: This is perhaps the biggest advantage of day trading. Day traders have the potential for making spectacular profits. In order to achieve this, a day trader must have the needed characteristics such as decisiveness, discipline, and diligence.
- Be your own boss: If you are tired of working for or under someone, then day trading might be something you can look into. A day trader usually works alone. This will allow you to have flexible hours and take time off when you need to. You will also get to work at your own pace.
- It is fun: Day trading isn’t one of those boring jobs. It is filled with fun and thrill. The joy a day trader get from pitting his wits against the market and other professionals day in and day out is truly exciting. The thrill plays a very vital role in decision making.
- No need for expensive education: You do not need a fancy education to really excel at day trading. There is no formal education needed for day trading but studying and knowing technical analysis and computerized trading may be very helpful. That is why it is advised to take courses on them.
- You get the self-employment benefits: As a self-employed individual, you will get to remove certain things from your expenses such as tax.
Cons of Day Trading
- Risk of substantial loss: The higher the reward, the higher the risk. That saying is very true for day trading. Day traders usually suffer huge financial losses in the first few months of their trading. This has an effect on some and they never move past this. Day traders also run into debts as they borrow just to fund for trading that they might lose in the end. These losses may not only curtail their day trading career but also put them in substantial debt.
- High start-up and maintenance cost: Starting day trading is very costly. You will have to deal with high-frequency traders, hedge funds, and other market professionals who spend higher amounts in order to gain trading advantages. With this obstacles, you will have no choice than to spend big. The spending will come in things like trading platform, charting software, state-of-the-art computers, and several others. The cost of keeping those things is also quite expensive.
- You have to quit your job: It will be very hard for you to be day trader while you are still working 9-5. Your steady source of income will be gone and you will have to focus fully on how to make a profit from day trading.
- Stress: Day trading is very stressful due to the fact that you will have to watch multiple screens to spot trading opportunities and quickly follow for up those opportunities. This is done every day and it gets really exhausting. You might burn out due to the high degree of focus and concentration that is needed.
Day trading is very good for individuals who are very passionate about trading full time and possess the qualities listed above. To be a day trader, you will have to deeply understand technical trading and charts and how they really work. To be successful as a day trader, you will need to stay calm and control your emotions even when you are stressed out. Before you go into it though, remember that you might earn a substantial profit or you might walk away with 100 percent losses.