I am not a fan of day trading and seldom prefer it. The day trading to the extent I do is book profit on my long-term investment on the back of some news where I anticipate a price correction and cover it at the end of the day or the next day.
There are 3 reasons I find are the main reasons for the disaster of intraday traders in the market.
1. Timing the Market
When it comes to day trading there are a couple of things that matter – Right time to enter and Right time to exit. The play is purely news based and there is no right price for a stock for any given point of time in a day and there isn’t right stock either. Everything depends on the market sentiment on that given day.
The market is always and will always be smarter than an individual and day trading is about timing the entry and exit in the market in a smarter way. For one successful trade, you have to be right twice in a day and it makes too many odds stacked against a day trader.
2. The Margins
Day traders are often playing on the margins and it is one of the worst things for a trader. I have been shouting at the top of my lungs about no margin trading and I pity when I see advertisements boasting about margins and how one can gain a lot more with them.
But no one considers a chance of losses. The message after the advertisement isn’t enough to educate about the risks of margin.
If you aren’t trading on margins, there is no need to be a day trader.
3. Too much Involved
The successful trade isn’t the end of the day and you want to be trading more. Even if you aren’t trading, you are watching the stocks which makes you feel, you could have timed your either entry or exit much better.
It is the case where you are always disappointed with your performance. The comparison is with the market and like I said, the market will always be smarter than an individual. A 2% gain on a given day for a day trader isn’t the case to rejoice but the feeling is, he missed the other 1%.
Even if a trader rejoices his gains for a day, deep down he knows they aren’t repeatable for an elongated period of time to be happy about.
Media channels want your attention every morning and so they share stock ideas that are short-term in nature – Day trading, buy today sell tomorrow or vice versa, positional trading. If they start sharing ideas that are good for a decade, they will lose repeat customers and TRP (Television Rating Point).
Let’s try to educate readers why they should avoid day trading. There is no harm in knowing about the news of whats happening around the globe but trading based on news that is reported after what has happened is never going to help. The market is smarter than those who watch news channel to trade.
I have share reasons I find are disasters for day trading but if I have missed anything or if you want to add more to the points or even do not agree on any point, please share them in comments below.