Put “Day trading” in a search engine and all kinds of articles will come up – most of them warning against it and it being a “sure fire” path to lose money.
It’s important to always consider the source when evaluating information offered by others – too many people try to pass off their opinions as “facts”, and therein lies the danger if one makes the mistake of believing their misinformation.
There are people doing this for all subject matters – it seems the internet is a breeding ground for false prophets. In the case of day trading or investing, it goes like this:
1) Person realizes that have no ability to day trade/invest.
2) Person than makes the leap that the problem can’t be with their ability, or lack thereof, and therefore day trading must be impossible for all.
3) Person then proceeds to share this “deduction” with others as if it’s an undebatable fact.
I recently read another blog written by some “Investment Capital Firm” that more people are starting to dabble in day noting the rise in active trading activity reported by brokerage firms, and warns them not to do it based on the “overwhelming odds” of likely failure. They even threw in some statistics to support their sentiment, such that 80% of all traders lose money and an extremely small percentage of people who actively trade are consistently profitable.
As Mark Twain is quoted as saying- “There are lies, damned lies, and statistics.” One has to be careful analyzing and interpreting the significance of what is presented as “statistical revelations”.
The dismal active trading stats needs to be examined more closely for a better understanding.
It’s important to understand that “anyone” can be declared an active trader by virtue of having enough money to open a brokerage account. There is no “pre test” or standard used to separate those who know what they are doing from those who don’t. Throw in all the commercials and ads painting the market as a way to get rich quick, and you have a ton of inexperienced and ill prepared folks trying their hand at trading- leading to an obvious high rate of failure. This doesn’t mean that day trading isn’t viable, but rather that it’s not easy and requires real skills.
If one could be declared a “doctor” by just buying a white coat and stethoscope, you’d also see an extremely high rate of failures among these doctors, but that also doesn’t mean one should give up on the prospects of being a “good” doctor whose willing to take on the proper education and training.
The writer also mentions day traders being more emotionally driven compared to the more “rational” longer term investors. Unemotional investing applies to day trading as well. Active traders getting emotional highs/lows from their activity are really just gamblers in disguise.
All the beneficial applications and behaviors of long term investing applies to day trading as well, only on a much smaller time frame.
One can systematically and unemotionally day trade the market with the same level of professionalism and savvy as an experienced long term investor. I would make the argument that a good short term trader makes for a good long term trader because the market’s nature is fractal and exhibits similar behavior over different time frames.
The bottom line is there are many day traders that lose money because they have not properly prepared and have no business being in that activity- and the same thing applies for longer term investors, or any profession requiring skill/training for that matter.
Day trading, like investing, can be done well if one is willing to put in the necessary study, training, and overall preparation in order to succeed. Those looking to get rick quick in either time frame are much more likely to fail in their quest.
It’s interesting to note that these articles warning people not to “speculate” on markets and leave it to the “professionals” could also be fueled by a hidden agenda besides basic ignorance. After all, a person who knows how to manage their money and invest well on their own is one less potential customer for a professional investment firm.