There are so many websites and courses out there that promise to turn you into overnight-day trading success. Quit your job, earn a million, win every trade – we’ve all seen them, and most of us know that what they are promising is close to impossible. However, there is always just that tiny part of us that wonders. There are success stories out there, so can day trading help you achieve these dreams, or is it just a fast way to lose a lot of money?
Indeed, do you remember those late-90s stories of the accountants, doctors, pizza delivery guys, and lawyers quitting their jobs juts to trade jobs in the comfort zones of their living rooms? Yes, the Forex day trading has one of the most independent approaches for getting money onto your lists- no boss with no deadlines and no hacks. Indeed, that was another new American dream for most people who wanted to try their hands-on day trading!
What Is Day Trading
Day trading is the practice of opening and closing positions within the day. At the end of the trading session, this type of trader will generally not have any positions remaining open. Day traders won’t leave themselves exposed to overnight risk, so a trade open overnight, or even over a couple of days is almost unthinkable. This avoids the possibility of the market moving against the day trader overnight.
A key point in day trading is that the market actually makes relatively small moves in a day compared to a few days, a week, a month or even longer. This means that in order to make a decent profit on a trade it is necessary for the trade size to be large. In order to trade large sizes, it is necessary to have a bigger deposit in your account to start with. So point number one, day trading requires a large balance on the account. Do not consider day trading if you don’t have a reasonable amount of risk capital.
Experience to control emotions
Larger trade sizes mean that the psychological impact of the trade is likely to be larger. Therefore, this means that more experienced traders most definitely have the upper hand. A seasoned trader is more able to control these emotions or is more likely to stick to a trading plan, even when the numbers on the profit and loss screen are large. Inexperienced day traders, trading larger sizes are more open to their emotions which often results in suboptimal trading decisions.
Should you decide to try trading smaller sizes, which means smaller potential profits, keep in mind this may actually be very difficult if there is a minimum commission cost. Often if you day trade small sizes in pairs where there is a high minimum commission you are shooting yourself in the foot as it is almost impossible to ever earn back the commissions on the trade in the day.
The speed of execution is so important to day traders. If markets move fewer points across a day, it is essential that you are able to benefit from the points it does move. This means fast execution. In order to be a successful day trader, you must trade with a broker which provides its exceptional execution. Vantage FX is an ECN forex broker meaning that its clients are offered tighter spreads, best in the industry execution and no requotes.
Can you make money day trading?
If you are into Forex day trading, you will frequently come across a question, that is,” can you really make money day trading?”. There lies a simple answer to this question, YES! Indeed, you will be surprised to receive such an affirmative answer coming from a group that preaches holistic financial planning! You will find many advisors are quick to shame the practice of day trading without acknowledging making money. In fact, some traders do make money. Moreover, some investors also have gone to the extent of making it a source of living. But, at the same time, you may be wondering about the fact that if the day traders are able to make money consistently? And what can be the risks associated with it?
The answer to the above question is essential to answer because at the end of the day, it lays an effective groundwork to answer why most of the holistic financial planners advise staying away from day trading!
If you see the statistics, you will find that around 13% of day traders make money in a given year. And just 1% of day traders tend to make money through day trading consistently, years after years! If you observe it closely, you will find this number to match with something like 1 out of 100! In other words, we can say that day traders trying to make a career out of it indirectly bet on the savings of their life with the minimal success rate!
It is for this reason; many a time day trading is also meant to be understood as gambling. Yet, it is hard to ignore the similarities! Indeed, both methods offer the potential possibility of getting rich. But at the same time, both are high-risk, fast-paced, and can provide a bit of adrenaline rush! Coming back to the question, can day trading actually offer to be a good option to the individuals as an alternative to traditional investment approaches? Contextually, history and statistics associated with it prove it is more unlikely!
Risk of day trading
With the above aspects of getting your minds to deal with the uncertainties of day trading, it is essential to understand the risk associated with it! The most important factor for this is that day trading has really no way to predict in advance the future situation of the market! You don’t know what is going to happen with the current market with a particular stock. Yes, investors have been trying to predict this for years, but still, there is no formula!
The only shortcut for getting onto the top of the lists for day trading is that you have to keep patience and perseverance. It should come with the willingness to risk everything and an incredible amount of knowledge for the same. And lastly, you should have self-discipline and a little bit of luck!
Difference between day trading and financial planning
It is really comparing the oranges with the apples, right? Day trading can be seen as a high-stress, get rich quick and fast-paced method that bases its existence on potentially lose it all, quick type of process. On the other hand, financial planning is a slow process! It deals with establishing your goals, desires, and dreams and planning the most likely method that could help you reach there.
It is to be noted that a good day trading invites risk, thrives risks; moreover, it loves risk! Whereas a good financial plan involves a detailed long-term investment strategy. It ignores the short-term market fluctuations and focuses on the proven methodologies holding, buying, and constructing a well-diversified portfolio as per the financial plan.
If you see it as a story, the financial plan’s method would see like tortoise raced the hare! A financial plan is rather well constructed with the individual risk tolerance level and goals to deal with at the forefront!
The bottom line
In conclusion, day trading can be advantageous. However, to do so profitably, trade sizes should be larger, which requires a larger trading balance and more experience. The success rate for the day traders are effectively calculated at around 10%, so you can check that most of the people in this are losing money! But if you are adopting a disciplined way, you may have some other favorable inferences.