In this article, I will explain why trading full-time is the last thing you should do. And I mean exactly that. If you have your mind set on day trading, I can’t and I won’t stop you. But there are several other approaches to investing or speculating in the stock market that might work better for you and here is why.
1) Day trading stocks is capital intensive
Due to the limitation imposed by FINRA, so called “pattern day traders” in stocks must have an account size of at least $25 thousand. That is a lot and also one of the main reasons why many choose day trading forex using margin instead of stock trading. Use of margin comes with it’s own set of risks and one problem still remains. You have to make many % of gain each month just to be able to live of it, let alone to get rich from it.
2) It is extremely stressful
I heard the stress of full-time trading is similar to air traffic controllers and other stroke-causing professions. My experience is similar. Although your working hours can be much shorter than a typical 8 hour work day, doing it full-time leaves you emotionally drained and far from being able to switch to party mode.
3) It is time consuming
Sitting in front of the computer screen and giving it an undivided attention hardly qualifies as a passive income and in fact is almost a perfect opposite of it. There are no slower days, like in the office. Or if there are, you can’t be sure about it in advance.
I learned all of the above the hard way and although it provided me with a valuable lesson, I consider my attempt on becoming full-time trader a bad mistake. And I did not even start talking about how hard it is to stay consistently profitable yet. Sure, any type of investing in the stock market will eventually come to this. Can you make money consistently? But just the time factor is adding a lot of unnecessary pressure if you are doing it full-time. Which brings me to another two reasons why it is a bad idea.
4) Short gaps between trades make it extremely hard to recover emotionally
You are trying to monetize on swings in price that are occuring in a time frame over which the value of the company couldn’t really change that dramatically. All the ups and downs are largely due to waves of fear and greed. If you lost money in the last trade, it is hard to be impartial and execute your strategy in a calm and collected manner again. And again. No time to rest after your mistakes. You are on your way to becoming a part of the problem. You find yourself rushing into the next trade just to make up for the last loss or hesitating even when presented with a perfect buy signal.
5) Your decisions have to be done literally in a matter of seconds
I prefer my final decision to be based on more than 100% automatic strategy. Otherwise you could simply write a trading program and let all the buying and selling be executed completely on its own (Many people are trying that, but don’t believe anybody trying to sell you such software. Why wouldn’t they simply use it themselves?). No, I am not letting in fear or greed, but I prefer to check also charts with different time frames, consider if it is the beginning or the end of trading time, check the volumes, make sure there is not a FED decision hitting the market later the same day, and a couple other things. If you try to do that in day trading, the opportunity is probably gone by the time you are ready.
And the final and biggest disadvantage I see is:
6) You are betting everything on this one shot
To be a full-time trader, you have to quit your job or neglect your own business. And if you try to divide your time half and half between trading and part-time job or less time-consuming business venture, you will soon realize that mood swings from setbacks in one, negatively reflect on the other. Now, when you have chosen it as your main source of income, you HAVE TO BE profitable. That makes it ironically so much harder to actually stay profitable.
So, if trying to milk the market full-time is such a bad idea, what else is there? I am not offering you the slow path of indexing your way into the retirement age. I know very well what drew you to day-trading in the first place. I bet it was the same thing that drew me to it. It is FAST. Everybody loves their money to come quick. They set up their trading station, make a first two trades that happen to be profitable and they already see themselves somewhere on a yacht in a couple months, sipping cold drinks in hot weather.
My current approach is following. Instead of being a position for couple hours inside one day, I am holding a volatile stock or leveraged ETF for couple days, or few weeks at maximum. This takes away all the negatives mentioned above. I don’t have to check my account all the time. Once a day for a couple minutes will do it, sometimes not even that is necessary. I place my stop loss order to protect myself and I can forget about the position for the rest of the day or longer.
Once I am out of the trade, I can stop trading for a few days, to analyze what happened. Why did I lose? Did I make a mistake or was it just bad luck and therefore I should keep going without changing anything? If I took profit, was there a way to make even more that I missed? Only when I am sure that hormone rush from the last trade dissipated, I am looking for the next perfect buy signal.
But not only I am making way less mistakes this way. I am also able to keep my regular job and cultivate multiple streams of income. This way I am not stressed about how profitable my trades are and if I will be able to pay my bills. I didn’t start with much. I put down a couple hundred dollars and went from there, learning from my mistakes. Robinhood app allowed me to invest even small sums of money without fees.
Do I make the same amount of money as a successful day trader? Of course not. At least not for now. But I am learning each month and I have more capital to work with each month. My plan on becoming rich is stress-free and compared to full-time trading also relatively low risk. I am using compound interest to achieve my bold financial goals and I described this strategy in more detail in a separate article titled Compound Interest Can Turn Trading into Fast Track to Wealth.
I am pretty sure I will never return to full-time trading myself again. But in case you still don’t think it is a bad idea, I suggest you try something similar to my strategy as a bridge between paper trading and diving into the market full speed. If you find out, you are bad at it, losses will be smaller, and if you stay profitable, you can always become full-time trader.