By now I am sure you have heard form friends, acquaintances and perhaps brokers on the merits of day trading. Certainly people do make money in this type of trading. Day trading involves sophisticated trading strategies, nerves of steel and a significant amount of trading capital to be successful. It should not be construed as a get rich quick scheme or process. People who make money day trading are adept at reading trends, volume charts and generally have a detailed exit strategy before they purchase a stock. Greed can quickly overtake any investor and in particular swamp a beginning investor. Having lost several thousand dollars over the course of 3 hours will teach you this lesson very quickly
The process of buying and selling stocks within the day to take advantage of sharp changes in their values within seconds or minutes is called day trading. Profits are quickly locked in once the rising or the falling of the interplaying stocks is judged to be most beneficial to one’s investment. The time restriction however, has the negative advantage of the transaction being most risky which can sometimes result to great financial losses within short periods of time. The usual practice for the day traders is to buy stocks on borrowed money, and heavily leaning on leveraging in order to reap bigger profits. The success of this endeavor is highly possible, creating wealth overnight, but as mentioned, the reality of having high risks for loss is also quite significant.
Many consider day trading as a sophisticated form of gambling, day trading however, is not unethical, nor illegal. If an unprepared beginning investor negotiates this type of investment, the stress may be too unsettling especially if the situation calls for a quick decision. The strategy, timing, and temperament of successful day traders win the day in this game. The term ‘investment’, actually, is a misnomer in this field of trading. Stocks are not really owned as traders look for those clues that will make them get out of these stocks before they change course for the worse. The day traders take advantage of the momentum in the present movement of the stocks’ values. The beginning investor commonly suffers severe losses in this type trading.
With the great risk of losing high amounts of money, funds intended for living expenses, education or retirement should never be used for this type of complicated day trading.
Our advice is to stay away from day trading if you are a beginner. Talk to any day trader and the tendency will be to tell you about the winners, not so much about the losers. Does that sound familiar? It should, many gamblers are wired the same way.