Day trading, its a myth.
We have all heard the hype around day trading, and the bullshit gurus telling you they have made millions day trading and you can too (If you buy their course). It probably gave a lot of you hopes at first, and for those of you who acted on day trading, I just want to say this:
It’s good that you acted to better your life, but day trading isn’t the way to go, unless you have gone through years of training, analyzing and somehow have more than 100,000$ to trade with… But if you don’t, I’m sorry, day trading is not profitable for the average investor.
Don’t believe me… Continue reading and I will tell you why.
But first, let’s break down the obvious.
Day Trading
For those of you who don’t know what day trading is, it’s based on buying and selling different types of stocks and other securities in short term (1 Day) based on the price of the stock/share and selling based on price as well. Easy said, it is taking advantage of the stock/share based on the course variation, with tools to measure and evaluate the stock. Day trading is most known in the Forex world, but today we are looking at why day trading in the stock market is bad.
Why is day trading so bad?
Of course, it is possible to make money day trading, but for average investors who hasn’t spent years studying the market and don’t have a great amount of cash laying around, there is a huge chance you are going to lose money. I will go through 5 huge points to prove that day trading is bad for investors, and if you are an average investor and still not convinced then I say, good luck day trading.
on to the points…
Now, point number 1. There is huge financial risk of losing your money.
Now, of course every investment in the stock market has risks, but day trading is on a whole different level of risk. First, buying and selling stocks or other forms of securities in a short period of time (1 day) is extremely risky because you evaluate the stock based on what the current stock price is. The reason why this is risky is because the stock market, as the crypto market as well, is unpredictable. And it is even worse if you don’t know what you’re doing, based on day trading you are potentially risking losing a huge amount of your hard-earned money. I will give you a statistic you probably haven’t heard, over 93 percent of all day trader lose money over five years. Among all day traders, nearly 40 percent quit after one month, within three years only 13 percent continue to day trade, and after 5 years there’s only 7 percent of day traders left.
So, you see, day trading is a huge financial risk. Day trading is equivalent to gambling in the casino. I’m sorry, let me rephrase that “gambling is almost the equivalent to day trading” when you gamble you have a better chance of winning.
Point number 2. There are extra taxes and fees.
When you day trade there is extra taxes and fees costing you more money. When you day trade your fees become bigger and your taxes become bigger, and this causes all your expenses to pile up, resulting in you not making great returns at all.
One example is, if you have held a stock for less than one year you would have to pay an income tax on your returns depending on how much you make. This is basically going to eat away a chunk of your profits.
Another example is brokerage fees, which is charged every time you buy and sell a stock. Now this is different from brokerage to brokerage, but nonetheless it will eat away at your portfolio when you day trade because you buy and sell multiple times a day, which is piling up the fees.
Point number 3. Day trading doesn’t pay off. A stunning 99 percent of all day traders don’t make a decent profit, so why even bother? Obviously, there are those lucky few who do well at the beginning, but luck doesn’t last forever.
Now, it is true that some traders can live off day trading. But they are a unique minority of all day traders. Most people who try day trading will not be successful, only about 1 percent of day traders are able to predictably profit net of fees.
But let’s be a bit transparent, if you become a part of the 1 percent, then you will be able to profit a big amount of money from day trading, but let’s not look away from the fact that the rest of the 99 percent of day traders won’t be successful, so becoming a part of the 1 percent is a huge if. Personally, I think the average investor would have a better chance of making huge amounts of money at the casino.
Point number 4. ITS UNPREDICTABLE.
Yes, you heard it, the stock market is unpredictable. You won’t know if the stock is going to go up, down or in fucking circles (From “The wolf of wall street”). The only way you would know this is if someone gave you some insider information, which is illegal.
The stock market is very volatile, which means it can quickly drop or rise in price for a variety of reasons. This is what day traders rely on to make them profits, which is dumb because no one really knows for sure where the stock price is going to go. It could go up, but it could also just as quickly drop in price.
So much can be a factor that decides the price of a stock, it could be from employees getting laid off to companies releasing future earnings estimates to a global pandemic or even the housing market flipping, some events even make the stock skyrocket or plumet dramatically…
At the end of the day, if you don’t know the stock market extremely well, day trading is just a very dangerous gamble. If you would ask me, I think even if you have the brains of Warren Buffet, day trading would still be a dangerous gamble.
Point number 5. You don’t even get rich quick.
Many people might see day trading to get rich quick, which is not the case at all. It’s not just “buy low and sell high” and then have a good profit and be happy, it’s so much more than that. This is just a myth; day trading is not like this at all.
The truth is that day trading is complicated, stressful and addictive. And if that’s not all, it is hard to make a consistent large profit. As I said earlier day trading is like gambling, you buy a stock betting that it will go up in value for you to sell, which is gambling. And like gambling it almost all the time doesn’t pay off.
You can put it as simple as you won’t get rich quick by day trading.
Moreover, it’s addictive. Just like gambling, going to the casino or buying a lottery ticket, it can be very addictive.
The fact behind this is that your pleasurable neurochemicals like dopamine and serotonin can be released by your brain when you are risking and investing in stocks. A person can therefore become addicted to these happy feelings, and just like every other addiction, it’s hard to stop. And in the end, it could ruin you financially, like it has done to many others.
So, now that you know these five points, I hope they have convinced you out of day trading. And you might ask “well, what other ways should I invest in the stock market?”
Continue reading to know what the best ways to invest in the stock market is…
What should you be doing instead of day trading, as an investor?
Long Term Investing.
“Time in the market, always beats timing the market”. What this essentially means is that long term investing is so much better than short term investing. This is because the stock market is so unpredictable that it’s almost impossible to predict the market short term.
Every investment in the stock market has the possibility of losing money, but when you invest in short-term then you are basically hoping the price will go up, which is risking your money on a whole different level. But when you are investing for the long run, you invest with the market, which is so much better and safer than short-term investing, but that doesn’t mean you don’t need to do your research on every investment you make, you still need to evaluate the index fund, stock, bonds or whatever you plan to invest in. Because if you just put your money into one of these without doing your research, then you are now again hoping the price will go up so you can make a profit, and now you’ve come just as far as every other day trader, basing your investment on how lucky you are.
So, just keep calm, do your research and invest for the long term.
Now, I’ll introduce you to one of the best ways to invest long term…
Drumroll please…
Compound Investing.
Compound investing is a type of long-term investment where you compound your returns. This is so much better than day trading because, for starters it’s not gambling, your using the most powerful investment tool available and you can get significant returns without high risk. (If you want books that goes in depth on long term investing and compound investing then i would suggest “The intelligent investor” and one of Tony Robbins masterpieces “Money master the game“).
Compounding, easily explained…
Compounding is basically the ability of an asset to generate earnings, which are then reinvested or remain invested with the goal of generating their own earnings. In other words, compounding refers to generating earnings from previous earnings.
If you want more information on the basics of compound investing and long-term investing, go check out my first ever blog post…
Now, if you are looking for a book to educate yourself on Investing than I would suggest, The Intelligent Investor by Benjamin Graham. The reason I would suggest this book is because the book offers sound advice on investing from a trustworthy source – Benjamin Graham, an experienced investor who flourished after the financial crash of 1929. Having learned from his own mistakes, the author lays out exactly what it takes to become a successful investor in any environment.
You can get “The intelligent Investor” by clicking on this link…
Thanks for reading…