As a day trader you will rapidly buy and sell stocks throughout the day. You’ll trade in the hope that your stocks will climb, allowing you to lock in quick profits. Many professional day traders borrowed money to trade, hoping they’ll reap higher profits by trading with more money. The downside of borrowing money to trade, however, is you put yourself at great risk for huge losses - and they do happen.
Day trading isn’t illegal or unethical, but it is extremely risky. Most investors trading on their own do not have the money, time, or patience to sustain the devastating losses that day trading can bring.
There are several things you need to know about day trading to mitigate your losses. First, you must be prepared to suffer severe financial losses. The vast majority of day traders suffer severe financial losses in their first months of trading. Most don’t keep at it long enough to graduate to profit-making status. When you decide to pursue day trading, you shouldn’t risk money you can’t afford to lose. The same advice is often given to gamblers.
Never trade with money you need for:
daily living expenses, and
retirement
Never use these things for trading capital:
money from you mortgage
student loan money, or
college savings money
When you start out as a day trader, you also need to realize that you aren’t investing in the stock market. That is not what a day trader does under any circumstances. You’re job will be to sit in front of a computer screen and look for a stock that is either moving up or down in value. You’re looking to ride the momentum of a stock and get out of it before it changes direction.
Even if you study a stock for hours, days, and weeks on end, you do not know for certain how it will move; you’re gambling by hoping it will move in one direction, and you are often risking money that it will go in the direction you want.
Remember that day trading is an extremely stressful and expensive full-time job. Day traders employed by companies must watch the market continuously during the day and this is difficult and demanding enough. Even if you’re not working in an office – particularly if you’re not working in an office – you need to develop great concentration to watch dozens of ticker quotes and price fluctuations. You need to be able to spot market trends by disseminating all of the information that’s there in front of you.
If you operate as a day trader, whether you work in an office or at home, it’s important to recognize that you’ll have high expenses, particularly in your first few months. Whatever your situation, you’ll pay your firms large amounts in commissions as you start up. You’ll probably also pay for training, and for computers.
Before you begin trading, before you make your final decision about taking on this profession, you need to have a written business plan detailing what your expenses will be and a plan for how long it is going to take you to break even.
Particularly if you’re trading on our own, avoid, if at all possible, borrowing money or buying stocks on margin. Borrowing money to trade in stocks is always ill-advised, although day trading strategies demand the use of leverage to make profits. But bad planning leaves many day traders in debt.
