Why You Shouldn’t Day Trade
It sounds enticing but isn’t in practice
Day trading can help you take advantage of stock price movements throughout the day to reap in a greater return than if you just bought and held.
This skill requires precise timing of the market to take advantage of stock price movements. You can day trade with stocks for some upside and downside potential, or you can trade options which raises the stakes in both directions.
However, I’m going to suggest that most people stay away from day trading. It’s not for everyone, and there are other ways to make money in the stock market.
The first main reason to not day trade is that most day traders actually lose. In fact, roughly 80% of day traders end with a net loss as outlined by this article.
An investment vehicle with low odds of success isn’t quite enticing. But let’s say you believe you are part of the 20% that wins as a day trader. The law of probabilities suggest some day traders will achieve this status.
Even then, it doesn’t make sense to pursue this route fully…unless this is your full-time income.
For day traders, you can’t just make a trade and then stop checking your portfolio. If you trade stocks every day or weekly options, you’ll check your portfolio way too often.
It’s one of the reasons I shifted to long-term options such as selling a Roku put expiring in January 2022 and focusing more on cash secured puts than covered calls (for most stocks in which I have 100 shares, I’d prefer holding onto those shares).
The day trading time will interfere with your work time. You won’t be able to fully concentrate from 9:30am to 4pm eastern, and you’ll be looking at the after hours movement as well.
If you make all of your money from the stock market and it pays the bills, you can commit that much time to it. However, if several income streams fuel your portfolio, you need to focus on those income streams.
Rather than only think about how you can generate an extra 5% return in your portfolio, think about how you can increase your income by 5%. This will increase the monthly contribution to your portfolio which will compound over time.
There are few things as exciting in the stock market when an options trade goes your way and you instantly double your income. But that type of result carries risks in the process and relies more on stock price movement than the company’s fundamentals.
And remember, day trading is not your only choice. You can invest in dividend stocks, index funds, and growth stocks. You can also invest in real estate to take advantage of leverage. You can either get a long-term tenant or use Airbnb to fill up your property so you don’t have to worry about long-term tenants. Real estate has more headaches than the stock market, but it is an investing option for people who prefer that route. The ability to put in sweat equity and utilize the leverage associated with real estate are very rewarding.
If you find yourself checking your stock portfolio often each day to see what’s going on with your trades, ask yourself if you’re really making enough money from this.
And an even more important question…can you make that type of money consistently? If you answer yes to that question, you haven’t been day trading long enough.
I trade options from time to time, but I wait for compelling opportunities rather than trading for the sake of trading. I can go entire weeks without trading options if I don’t see the right opportunity…and I’m happy with that.
Day trading works for some people, but for most of us…not so much.