I do not recommend day trading stocks at all. In fact, with the way the world is right now I would say that this would be the worst time to start trading stocks. I have heard of many people who were doing good until they lost everything.
To make matters worse, I have heard stories of people who have committed suicide allegedly because of day trading. One of whom is a college age student who allegedly stated that he committed suicide because of his account balance on a trading platform. Granted suicide is a very complicated matter. There is no one single factor. This guide is not meant to convince you to trade stocks, but to inform you of what is required and expected. Day trading stocks is just too stressful of a task to take on as a novice when the world is very stressed.
Day Trading Requires A Significant Amount Of Money
In order to be a day trader on the stock market, you need a brokerage account with at least $25,000 to legally trade. In other words, if you expect to make a certain number number of trades each day, you need as much as a new car set for trading. It is recommended that you start out with $30,000 so you have $5,000 as a buffer. This policy was intended to prevent a trading bubble.
Unfortunately, there is another purpose. Most people are deluded to believe trading a small amount of money is a good way how to day trade stocks. A small amount of money will not help. Many traders recommend that you only risk 1% of your account per trade. If you start with the $30,000 recommended minimum and trade $300 and make a whooping 50% on that trade, you just made $150. That is assuming you do not have any transaction fees. Assuming $4 per transaction (which is the smallest fees I have found, that would be $142. What stock do you know that rises 50% in one day? Even Tesla only increased by a little less than 25% in a day. You cannot expect much money coming from trades even at the best of times if you are just starting.
Most Traders Lose Money
Statistics suggest that 95% of traders fail, but other statistics show that with trader fees, only 1% of day traders see net profits. I am sorry, but unless you have had a significant amount of experience and find my blog about how to day trade stocks incredibly trivial, now may be the worst time to really try stock trading.
With the market as volatile as it is right now, chances are even more traders may lose money (99% can still go higher). And if you have traded a significant volume of money, that is all at high risk.
You Have To Be Incredibly Active
Many people believe day trading is the stay at home job where you can wear no pants and make money while staring at a screen with multiple screens in front of you. What you wear while trading stocks is your business. However, being distracted while day trading is not how you can day trade stocks.
Most professionals will only have charts related to their holdings. The most unrelated item on a professional day trader’s computer will be news about general markets.
Some people believe that traders work all day and they are just engaging trades. This is not true. Trading is usually done at specific intervals during the day depending on their strategy. But just because you are not making trades does not mean you are done with your job. You are doing more research on markets than you ever did for your essays in college. This way you can adjust your strategy based off news or numbers.
You Need To Be Mentally Prepared
There is not a single day trader who is unwilling to take risks. However, the best traders will know how to mitigate risk just like anyone trying to make money. Diversification is a key, some of the most successful traders trade in mutual funds instead of stocks.
Even with controlled risk, traders can and will lose money. If you want to be a day trader the best advice is to quickly get over your pride. No amount of pride nor preparation will prevent people from facing losses when day trading. The best way to face those losses is to set limits on how much you are willing to lose each day and what your maximum winnings should be. This way you will not be driven to make riskier trades to make up for losses nor become too greedy.
Problems With Day Trading
The stock market is not a scam. Some may argue how profiting off the stock market relies on the fact that someone must buy your stock for a higher price. In other words it is a market. Plus, you are not just buying a piece of paper but, partial ownership of a company. This provides you with access to the company’s profits. Not a scam.
However, a company can perform a lot in the long-term. How much can a company do in one day? Not as much, but you would be surprised by what a company can do in one minute much less an entire day. Granted, stock prices are much less likely to reflect their actual value in the short-term versus the long-term. Day trading stocks never produces value in the market. You would be surprised at how buying stocks can add capital to a business, even after the IPO.
Day-trading does not give companies much access to the capital you invested. Therefore, it does not add as much value to the economy. Therefore, day trading stocks is more or less a zero sum game. And keep in mind, you have to pay transaction fees, that is why it it tends to lean towards less.
Day Trading Is Much Like Gambling
If you want to know how to day trade stocks successfully, the answer is luck. Granted as Benjamin Franklin said “I am a strong believer in luck and I find the harder I work the more I have of it.” You will have more luck in day trading if you gain more experience and work at it.
The same is true in poker and roulette (yes, there are classes to predict winning numbers in roulette). All together luck is the outcome from factors which people have little if even any control over. Day trading with stocks is like gambling because you are not relying on known factors that affect a stock price like the goal of a company, the company’s portfolio, nor it’s quarterly financial reports. You are relying on current news and people’s reactions to that news. Read how to predict roulette numbers, you would be surprised at how you could “predict” roulette numbers by someone’s reactions. Even then, there will be billions of X factors you probably did not take into account.
Day trading stocks is like gambling. You cannot control the outcome even at the best of times.
Right now probably is not the best of times. So if you want to start day trading ask yourself this.
- Do you have $30,000 to actually spare?
- Are you just trying to get a thrill?
- Are you desperate?
I do not recommend day trading right now because of how the world is. It will always be an unpredictable force in which there is little reason to take so much risk in something you would not believe in holding for a long time.