Day trading is arguably the most popular trading strategy
for traders who like high-frequency trading.
Aside from swing trading, it is one of the most sought after styles that
many traders want to master.
Indeed, day trading offers a lot of benefits for those who
have the guts to try it. However, with
the benefits come many disadvantages, risks, and dangers, too. And, as a responsible trader, you should be
well aware of both the pros and cons of such strategy.
If you are planning to try day trading as your strategy, you
should read this article and keep each item in mind. Read on!
Day trading Pros
To hype you up about day trading, here are the possible
benefits you can get from it if you do it and do it right.
Great chances for great profits.
This is perhaps the most attractive feature of day trading
for many traders. The idea behind day
trading is to capitalize on small market fluctuations, opening and closing dozens
of trades within the same trading day. The
key is to have far more winning than losing trades.
You’re the boss.
As a day trader, you will most likely work alone. That means you don’t have to kowtow some corporate
big-whims anywhere. You can take a break
practically anytime you want or whenever you need to. You can work at your own pace.
It’s exciting and dynamic.
If you’re a little bit of an adrenaline junky, this is for
you. With day trading, you are compelled to trade in a very rapid-fire fashion. You will never experience any dull moment
with day trading. Of course, with all
the adrenaline and action and stuff, you need to be very careful while you’re
at it. Great risk management skills are
a must.
You don’t need a highfaluting degree.
Sure, having a degree framed in golden portrait from some
Ivy League university is a welcome add-on.
But you don’t really need to have anything like that to get into day
trading. Of course, you need to at least
have some good knowledge of market movements, stocks, currencies et
cetera. But you don’t need to be a
rocket scientist or a mathematician to join the game.
Tax benefits.
Since you’re basically a self-employed individual (assuming
that you gave up your day job for day trading, which is something you’ll
probably have to do), you can write off specific expenses for tax
purposes.
Day Trading Cons
Now here are the risks you have to be aware of if you want
to go on with your day trading career smoothly.
Read on, cowboy!
Great chances for great losses.
Not to make you uncomfortable or discouraged, the Securities
and Exchange Commission (SEC) stated that day trader usually lose great amounts
of money when they start out, and many of them never even reach a profit-making
status before they quit.
That means you really need to have balls of brass and
rock-solid guts to survive day trading and become profitable.
High startup and maintenance cost.
Keep this in mind, you should be your own man when you’re a
day trader. That means you’re going to
take on and compete with huge corporations that can spend millions of dollars
to gain trading advantages. As for you,
you’ll have to shoulder all expenses, pouring huge money on the trading
platform, software, state-of-the-art computers, and such items.
No regular pay.
As we have indicated above, you might have to give up your
day job for day trading. That’s because
this strategy demands much of your time and energy. Although you can theoretically take time off anytime
you want, you’ll first have to consider if you can really take a break and
leave your trades and risk missing a great day trade opportunity. Also, the pressure is real: you’ll have to
depend on your skills and exertions entirely to pay the bills.
High stress
As you may have imagined, day trading may be exciting but it’s
also quite stressful, especially when you start seeing your trades going
against you, or if the market’s already in the bear territory. There’s just a lot of things that can stress
you out, increasing the chances of burn out.
Conclusion
Once cannot say definitively is the benefits far outweigh
the risks and dangers of day trading. But
one thing’s for sure: those that are dedicated and hardworking enough can
definitely gain something out of day trading.
So before you become day trader, make sure that you’re well prepared for
the battle ahead. Have a trading plan,
improve your risk management skills, determine your risk tolerance, learn about
technical analysis, and become a successful day trader!
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