Day trading is often portrayed in the media as a quick and easy way to get rich. Take, for example, the movie Limitless, where the main actor sits down in front of a computer on Monday morning, and starting with a few thousands of dollars, ends the week in up one million dollars. YouTube helps reflect this stereotype:
$500 in thirty minutes! Making $500 into over $300,000! (That’s almost a 60,000% ROI) They sound to good to be true, and they are.
It’s a well known and documented fact that 98% who day trade fail. This fact alone should dissuade you from day trading, but unfortunately many people need to learn the hard way (myself included.)
Referring back to the YouTube videos, there’s a simple reason not to trust them. If these “Gurus” are truly making all of their cash day trading, then why do they even bother with YouTube? The simple reason is that it’s more profitable for them the pretend to win big in day trading, and dupe you into buying a course, or book, or strategy, rather then actually trade for a profit.
For many people aiming to become millionaire by 25, day trading will be a quick, detrimental endevour, which will steal your time, money and enthusiasm towards investing.
I’ve been very successful in calling small-cap stocks that will see long term success. As of today, 2/9/2019, my analysis company, WappCap, is rated #85 out of over 6,500 companies/bloggers, and #439 out of 11,800 overall experts by Tipranks.com. That’s well within the top 1%.
Small cap stocks are a risky investment, because they’re much more volatile then their blue-chip brothers. Because I did well in the industry and had the stomach for risk, I decided to head over to day trading. Here are a few lessons I learned the hard way.
There’s a 0% chance you’ll make money if your starting capital is under $20,000.
I started day trading with well under $20,000 in capital. There was absolutely no way I could remain profitable. Say you have $500 and decide to day trade with it (like one of those YouTube videos mentioned above). Even if you make a 20% gain in a lucky trade, it would only be $100 profit. That may sound good on the surface, but you’re about 20x as likely to realize a 20% loss. Almost immediately, you’re capital is gone,
The effects of stress are nothing to joke about.
Stress is a major reason why many wall street professionals die in their 50’s. Your blood pressure will elevate, you’ll begin to over eat, gain weight, and more. In some cases, you’ll begin to feel suicidal.
You are literally trying to beat supercomputers.
The majority of market trades are now executed by high frequency trading setups, run by major hedge funds and asset managers. These computers can buy and sell multiple times a second, and with some serious buying power behind them, they can move stock prices significantly. Using market analysis techniques and AI, these programs are extremely hard/impossible to beat.
When every second counts, Robinhood isn’t going to cut it (they execute really slowly because of their free trading system). Without at least $10,000 (in some cases you’ll need $100,000), you wont be able to open an account with a day trader oriented broker, like Interactive Brokers.
You’ll be stuck using a normal brokerage, like Ally Invest, or TD, where the cost per trade is around $5. This is fine for normal long term investing, but for day trading, these trading fees will really add up. If you execute 100 trades per week, then it’ll cost $500 in fees alone. There goes your initial capital.
You’re going to loose all your money, plain and simple.
Without years of knowledge and training coupled with luck and large quantities of cash, you’re going to loose all your money. In many cases you could even go into debt by taking margin loans and being unable to repay them. (Stay away from margin!)
Instead of day trading all of your money away in a matter of weeks, invest in yourself. Read some of my recommended books, invest in online (not day trading) courses. Put the cash in a 401k.
Especially for teens, day trading can be so alluring (that’s why all of the gurus target our age demographic) because of it’s implied simplicity. All you need to do is learn some techniques, grab some cash, and get to it, right? Don’t fall for the trap, and invest your money in something that will actually result in a positive ROI.