The number of novice investors day trading has surged during the coronavirus pandemic. People stuck at home have turned to playing the stock market on trading platforms with the hopes of big returns on their investments. While it has made some savvy investors rich, day trading has left many others with massive losses and in worse financial shape than before.
Day trading is risky and different from traditional investing. Day trading involves rapid buying and selling of securities to take advantage of small movements in prices. As a day trader, hedging your bets across a variety of day trades comes with inevitable losses on some trades and gains in others, with the goal of ending the day in the green. Day trading isn’t for everyone, and it takes a particular type of person to ride day trading’s rollercoaster of volatility day-in and day-out. Most individuals do not have the wealth, the time, risk tolerance or the temperament to make money and to sustain the devastating losses that day trading can bring.
If you are considering day trading, make sure you understand its dangers:
Huge risk – losing money is part of day trading.
Don’t enter into day trading if you don’t have the money to lose and you don’t have the flexibility to sustain losses daily across multiple trades.
Quick wins don’t guarantee future success.
Be careful of unfounded confidence and emotional decisions – each trade is unique and a huge win one day could be a loss the next.
Be prepared to treat it as a full-time job.
Day trading is time-consuming – to be successful, you need to have the self-discipline to view it as a full-time job and conduct ongoing investment research and monitoring.
Watch out for claims of easy profits, hot tips or expert advice
Relying on investment advice from day trading firms or platforms, websites, social media like TikTok or charismatic day traders can be dangerous as they may be seeking to gain profit from their recommendations. Don’t believe any claims without checking sources thoroughly.
Remember that seminars, classes and books about day trading may not be objective.
Find out whether anyone offering advice about day trading stands to profit if you start day trading.
Beware of easy training sales pitches.
Day trading training systems are heavily marketed to make it seem like an easy, safe, fun way to make money. These commercials leave out details about the pressure, the importance of researching and testing, and the high levels of risk.
If you recognize this and are still determined to try your hand at day trading, make sure you do the following:
Understand the risks and then choose whether this type of investing is right for you.
Know yourself as an investor, your risk tolerance and your financial goals before you decide to day trade. Take our Check your risk tolerance quiz to see if day trading aligns to your investing style. > Go to quiz
Learn all you can about investing and day trading.
In order to increase your chances of success, you need expertise, so read and research all you can on it. Day trading is not ideal for those new to the investing world.
Assess if you have the right personality and discipline
You need long-term dedication, a focused mindset and the ability to ride the stressful highs and lows of the day trading roller coaster.
Only invest what you can afford to lose.
Day traders typically suffer severe financial losses in their first months of trading, and many never attain profits. Set aside a set amount and don’t get caught up in the hype or panic to invest more as a way to make up losses. Think of it like gambling in Las Vegas – it’s never a good idea to double down at a table when losing. Get up and walk away.
Research a good trading system, and keep at it.
Day trading requires a lot of self-discipline and trust in your trading system and algorithms. It is more complicated than just following a hunch. If you don’t have a system and manage risk, you are more likely to lose money.
Day trading requires expertise. If you do decide to pursue it, do your homework, and develop a financial plan to ensure it’s the right approach for you. Remember, all day trading firms must be registered, visit CheckFirst.ca to check the registration of any firm or call 1-877-355-4488.