Daytrading has been one of the hottest buzzwords in the trading world lately. Some people tout it as the best way to make money fast, while others recount how they became a victim of this form of speculative investing.
If you are planning to embark on day trading, you might want to give it a second thought. Day trading is no easy business. It isn’t something you do just for fun, especially if you are trading leveraged products or using leveraged strategies for investment.
Here are the top reasons why daytrading is not a good way to make money:
Day Trading Can Get Addictive
Yes, day trading tends to become addictive. You will constantly look for the next stock you can trade in. It may even end up overtaking your life if you aren’t too careful. Learning when to draw the line and walking away from the market occasionally is necessary to avoid negative consequences.
Day Trading Can Make You Lose Money Fast
Using stop-loss orders is one of the most important day trading rules to serve as your protection from losses. Day traders often follow this piece of advice religiously when starting. However, once they become more comfortable, they become careless.
This is why many day traders often suffer significant financial losses at a certain point. Good thing that it is usually a strong enough wakeup call to make them start using stop loss orders all over again.
Day Trading Can Make Your Emotions Run High
Only a few things can compare to the adrenaline rush you feel when day trading. The thrill of placing and making a profit out of a trade on short-term price movements is almost the same as the rush you feel during extreme sports activities.
But while this is such a great feeling, it can also make you more prone to losses. You might end up staying in a trade for a long time or overthinking because of a flawed analysis. Worse is when your gut feeling tells you that something will happen but your brain pushes you to sell to cut your losses.
For this reason, traders should always keep their emotions in check when trading.
Day Trading is Time Consuming
Day trading requires lots of focus, not to mention that it is intensive and stressful. Since the stock market moves so fast, you need to keep a close eye on your open positions if you have any. It can spell serious disaster if you walk away even for a minute. Although you don’t need to monitor the market if you have no open positions, you need to stay on top of everything if you have.
Day Trading Requires Lots of Money to Begin
Many day traders can get started even without a large sum of money. But if you want to meet a specific guideline called the pattern day trading rule, at least $25,000 as an investment is required.
The rule that is often called PDT says that need $25,000 if you make four trades or more within five days and the trades consist of over 6% of the trades you have in your account.
Day trading isn’t a simple walk in the park, which makes it not the best way to make money.