When people first start investing, they have to decide on which approach is best for them. The good thing about investing, there is nearly an infinite number of strategies one can take.
Day trading is often one of the strategies that new traders consider. This is where people attempt to make short-term profits by jumping in and out of stocks, often holding trades for a few minutes to a few hours. And why not… Social media has no shortage of people showing off their large one-day profits from day trading. What could be better than buying a stock then selling it an hour later for a quick $10,000 profit?
You see people do it on social media, so you know people are doing it, right? Wrong! Day traders often sport one of the worst win/loss ratios of all trading strategies. Sure, it’s easy to make a video of a winner, but how many losses did it take to get there? That’s the part social media never sees.
Should I Get Into Day Trading?
You need to understand what you’re getting into before you jump into the risky venture of day trading.
First, roughly 90% of all new day traders end up failing the first year. According to tradecity.com, 80% of all-day traders end up giving up after their first two years. To put two years into something only to lose money and give up sounds awful! Are you going to be in the 10% that succeeds?
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So why do so many investors fail… It is mainly due to the fact that minute-by-minute stock prices are more or less random. Sure, you can identify short-term patterns, but these patterns break down all the time. This is why even the best day traders only win slightly more trades than they lose.
Next, day trading is one of the most stressful forms of all investment types. How good are you at handling your emotions? Investing is often very emotional, and if you’re making investment decisions due to elevated levels of stress, you are likely not going to make the best decisions.
Do you think you’re better than sophisticated institutional investors and artificial intelligence? Because this is what you’re competing against. Maybe one day you’ll make it into the top 10%, but until that day comes, you’ll be competing against the best day traders in the world, both humans and machines.
Do you want to use your hard-earned money to try to get good at something where you will always have a disadvantage?
If Not Day Trading, then What?
Smart investing is a strategy that’s been around for a long time and one where people generally continue to profit. This means taking positions in stocks or options, or a combination of the two based on fundamental research. This is a strategy that pays off by digging deep within companies to see why they will gain or lose value over time. A strategy that has worked for investors over and over again.
This type of strategy not only has proven to be successful over the long run, but it dramatically reduces investor stress and takes the emotional swings out of the equation.
Plus, by taking a longer-term investment approach, you don’t have to park yourself in front of the computer every day. You do your research, and once you spotted an opportunity, you open the position and wait for the portfolio to gain value. This means you can do other things throughout your day versus watching a stock price change minute by minute.
For those who want to be successful investors and serious about making money in the market, it’s far wiser to take a longer-term approach to investing. Don’t be fooled by flashy social media videos that show people getting lucky every once in a while. Remember, if you trade at all, you will undoubtedly have positions that make big profits among all the losers. These lucky positions are usually the ones highlighted on social media.
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