Wednesday, April 1, 2015

The Truth About Day Trading

Day trading stocks is not easy it requires a lot of discipline.  By this I mean that you need to develop rules and stick to them, easier said than done.  You can make mental/paper trades and in all of those come out a winner and exit/enter at the right times.  When you trade with real money that is another story emotions take over and you begin to behave differently.  The same discipline that I used to transform my body (eating healthy haven't had a cookie in over 7yrs, jogging, weight training) is the same discipline required to be a good day trader.  Consider this if I meet 10 stock traders 8 will have told me that they lost LARGE sums of money of the 2 remaining one will have broke even and the other either took small losses or small gains.  The norm is that most have lost money they couldn't afford to lose.  That is why you should only trade with money you can spare but almost nobody does that and that brings me back to my first point it takes discipline to do what you are supposed to not what feels good.

The worst thing a day trader can do is start off with a few gains and think that he is gifted and start taking on large trades only to encounter his first huge loss.  That is another point I want to make not all of the traders I meet start off losing some make $20-$30k but manage to turn that into a $50k loss. Then you have the guy that bought at the 52 week/all time high only to see his stock eat it hard.  I have traded for years so I have become better at managing risk.  I have seen so many things go wrong.  I have taken several painful losses as well as healthy gains there are so many scenarios and things that can and do go wrong that I could have not known or hedged for when I first started trading.  I unlike most started trading with small amounts of money to protect myself and to make sure I did not confuse luck with skill.

There are just too many things to explain that I would need to write a book, just know that until you see many personal examples of irrational stock behavior, mistakes as well as other things go wrong (problems such as having your Internet service interrupted in the middle of a trade) don't day trade or stock trade too aggressively.  From my experience you shouldn't trade stocks every single day I think the more you trade the more likely you are to make mistakes so don't over trade, sometimes just holding on long term can be a better strategy.  Finally, you can't compete against huge financial institutions so know that your trades will always be at a disadvantage compared to the big boys.  If you decide to day trade you are only hoping to take little bits here and there off the table.  In regards to trading speed is everything.  Therefore be cautious or try other ways of making money that come with less risk.

One last thought on Tuesday I day traded GoPro at 43.55 today it is trading at 40.45 overnight I would have lost $3100 that is one of the risks associated with day trading.  Instead I went ahead and traded Twitter at 50.58 (now trading at 50.29) which gave me a quick profit.  I don't hold allegiance to any stock I pick what seems profitable for the day this changes day by day, minute by minute.  

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