Day trading involves placing short-term trades that do not last more than one day. This is a trading concept aimed at profiting from short-lived price fluctuations in the financial markets. Typically, some day traders place multiple trades every day, while others may place and exit a single position per day.
Traders buy and sell financial instruments within the same trading day. Day traders close positions before the close of the market to prevent unmanageable risks and negative price changes that might occur from the next day. They use a high level of leverage and trading strategies to profit off volatile stocks or currencies.
Day trading can be very lucrative when done properly. However, it’s always challenging when approached without good skills and a well-planned strategy. Even the seasoned traders hit the “hard rock” and incur losses. On the same note, the long-term success rate is low.
Individual investors and institutions take part in day trading. It can be a part-time hobby or a full-time career. Stocks, foreign exchange, and futures are the most common day trading markets.
Is day trading smart or stupid? Well, day trading in itself is good and can be very lucrative. It is a smart way to make money off the financial markets. That said, when we use the words “smart” and “stupid” in relation to trading, we refer to traders that take smart or stupid trading moves, respectively.
Day Trading the Smart Way
Let’s walk through how to do day trading the smart way:
- The Right Mindset
Smart day traders know how to trade, benefit from the markets and stay profitable. This does not in any way suggest that they do not lose. However smart day traders approach trading with the right mindset for personal growth. They understand how to manage both outcomes in order to stay profitable in the long term.
- Time Factor
The bedrock of smart traders is the understanding of time investment. Day trading is something that takes years to acquire consistency. A newbie should spend 6 to 1 year learning and refining the trading skills. Some important skills such as risk management and psychology skills take time to master.
Extensive practice with a demo account is necessary for success in day trading. You are expected to practice a strategy for a long time before trading with your capital using the strategy.
Profiting off the financial markets calls for patience, discipline, and focus. These trading traits don’t develop overnight. They stem from many months of practice and in-depth study.
Day Trading the Stupid Way
In the trading world, not every trader is smart and this makes a lot of difference in the trading outcomes. Let’s take a look at some attributes of non-smart traders.
- Get-Rich-Quick Approach
Many day traders, especially individual investors think that day trading is a quick way to make money. That’s a faulty approach and it always ends up in tears. People with this mindset believe they can make a lot of money in a short time with little capital.
- Inadequate skill
Not spending time to learn before committing real money is one of the popular stupid approaches to day trading. The ideal thing is to spend from 6 months to a few years trading with a demo account until you find strategies that work for you.
Many start trading with little or no skill hoping to be lucky. Unfortunately, that’s not how it works. To succeed at day trading, you need to be psychologically sound, financially literate, and good at managing risk.
Day trading can be lucrative. However, not every trader is smart. Some are not patient enough to learn how it works. As a result, they crash out and blame it on the system. Day trading is sophisticated, yet smart traders stay afloat.