Why I Don't Day Trade (and you Shouldn't Either) - The Freedom Trader (2024)

I’m not a day trader. I’ve never been a day trader.

And, honestly, I don’t know anyone who’s made any money day trading (without sacrificing a lot in the process).

In fact, it seems like the majority of newbies who attempt day trading lose money.

So, is it even worth trying to day trade? Personally, I don’t think so.

Here’s why…

The Myth Of Day Trading As Easy And Quick

Many people view day trading as a quick and easy way to make money.

After all, what could be simpler than buying and selling stocks throughout the day?

However, day trading is actually a very complex activity that requires a great deal of skill and experience.

Most people don’t fully understand the risks involved before even considering entering the world of day trading — rather, they get caught up by an image in their head conjured up by Hollywood portrayals of stock traders (e.g. Gordon Gekko in Wall Street, Ben Affleck in The Boiler Room, or Leonardo DiCaprio in the Wolf of Wall Street), which project the allure of being able to greatly multiply your money in a short period of time.

Yes, day trading can be very lucrative. If you know what you are doing, it is possible to make a significant amount of money in a short time period. It can also be exciting and adrenaline-pumping – after all, there’s nothing quite like the rush of making a successful trade.

However, there are many downsides to day trading in today’s modern age that most rookie investors don’t consider.

And it’s these downsides that don’t make day trading worth pursuing for everyday stock investors seeking financial freedom.

How Day Trading Works

Before we get to the downsides however, it’s important to understand how day trading actually works.

There are two main types of day trading: scalping and intraday trading.

Scalping

Scalping is a very short-term form of day trading that involves buying and selling stock multiple times throughout the day in the hopes of making small profits on each trade.

This strategy generally involves holding a stock for only a few minutes at a time and taking advantage of small price fluctuations.

It’s a high-frequency type of trading that can be very stressful and time-consuming. Traders who implement this strategy typically place anywhere from 10 to a few hundred trades in a single day.

Intraday Trading

Intraday trading is a longer-term form of day trading that involves buying and selling stock throughout the course of the day but closing all positions before the end of the trading day.

This strategy allows you to take advantage of slightly longer price movements, however it’s still within the confines of a day, so there’s still quite a lot of pressure. It’s slightly less stressful than scalping, but for most people, it’s quite the emotional roller-coaster ride.

Why Day Trading Is Not Worth Pursuing

Most people get into stocks because they’re looking for a life of freedom and passive income. They want to be able to make money without having to work for it.

However, in many cases, day trading is the complete opposite of what they’re looking for.

Here are several reasons why day trading is not worth pursuing for most stock investors…

1. You’re Competing Against Algorithms, Robots and Artificial Intelligence

If you want to be successful at day trading, you need to have an edge over the competition.

And make no mistake, the competition is fierce. You’re not just competing against other human day traders, but also against algorithms, robots, and artificial intelligence.

These days, many stock trades are placed by algorithms and machines. They can place orders in a split-second and they don’t get tired or emotional. They’re just following a set of rules. Moreover, they’re constantly being monitored, tweaked and further optimised by specialist teams of highly intelligent, top-tier programmers and data scientists.

As a human day trader, you’re at a big disadvantage. You simply can’t compete against the speed and accuracy of algorithms.

2. The Risks Are Too High

Day trading is an active investment strategy that involves a great deal of risk.

You’re buying and selling stock multiple times throughout the day in the hopes of making small profits on each trade.

But because the profit margins from stock price movements are so small, most day traders will use leverage (i.e. borrow money) to magnify their returns. What this means however, is that any losses will also be greatly magnified.

As an example, when I first started my journey, I used leverage to magnify my returns – and even though I wasn’t day trading, I ended up blowing $100,000 (my life savings at the time) when just three accounts went bad. If you’d like to learn more about this story and the lessons I learned from the experience, I talk about it in detail in this post here.

3. It’s Very Costly

Every time you buy or sell a stock, there are commissions (i.e. brokerage fees) and taxes involved. Because of the high-frequency of trades being placed, these numbers add up very quickly — to the point where it can eat into a significant portion of your profits (or even turn a profit into a loss).

In addition, if you’re using leverage, you will also have to pay interest on the money that you borrow. All of these costs can quickly eat into any potential profits you might make.

4. It’s Time-Consuming

Another big downside to day trading is that it’s quite time-consuming.

Remember, you’re monitoring stock prices and making split-second decisions throughout the day. This takes up a lot of time and energy.

This is time that could be spent doing other things, such as working on a business, spending time with family and friends, or pursuing other hobbies and interests.

In other words, day trading can take over your life if you’re not careful.

5. It’s Stressful

Day trading is incredibly stressful.

Remember, you’re constantly monitoring stock prices and making split-second decisions. This can take a toll on your mental and emotional well-being.

If you’re not careful, day trading can quickly lead to burnout — the complete opposite of what you want to achieve as an investor seeking financial freedom.

The Bottom Line

So, there you have it — 5 BIG reasons why I don’t day trade (and why you shouldn’t either).

Day trading is risky, time-consuming, stressful, and the odds are against you.

It’s not worth pursuing for most stock investors, and if you’re looking to invest in stocks, there are much better (and less risky) ways to do it.

If you’d like to learn how I personally do it for myself and hundreds of others, I’d like to invite you to check out my FREE online masterclass.

In our jam-packed 90-minute class, we’ll show you how I invest and trade in the stock market in a way that allows me to:

  • only spend an average of 30-45 minutes a day researching and executing trades (sometimes more if there are more opportunities)
  • not risk my hard-earned life savings by using leverage
  • not have my capital gains profits all eaten up by brokerage fees
  • and perhaps most importantly, still keep up with algorithms, robots and artificial intelligence in today’s age

We’ll walk you through everything from how to choose the right stocks to invest in to risk management tips that will help keep your portfolio healthy.

Register today and learn how to start investing and trading the right way.

I’ll see you on the other side.

Terry

Why I Don't Day Trade (and you Shouldn't Either) - The Freedom Trader (2024)

FAQs

Why I Don't Day Trade (and you Shouldn't Either) - The Freedom Trader? ›

The Bottom Line

Why you should not do day trading? ›

Downsides of Day Trading

Day trading is a high-risk, high-reward strategy. If your decisions don't work out, you can lose money much more quickly than a regular investor, especially if you use leverage.

Why does day trading not work? ›

While day trading offers an entrepreneurial career route and a high profit potential, there exist some limitations and risks to the profession. These include high financial loss, emotional pressure, lack of access to certain markets, time commitment, and regulatory requirements.

Is day trading a waste of time? ›

Day trading is not worth it for the vast majority of day traders. Anecdotally, it's been widely estimated that 95% of day traders ultimately lose money, and it's been empirically demonstrated that about the same percentage of unprofitable day traders continue despite losing money.

Why is day trading frowned upon? ›

The problem is, it's almost impossible to predict which direction these stocks will move throughout the day . . . and one wrong guess could lead to hundreds or even thousands of dollars lost on a single bad trade. And day traders typically end up on the wrong side of a trade more often than not.

Is it better to day trade or invest? ›

Tax Implications

Unlike day traders, long-term investors may benefit from lower tax rates on their profits. If an investment is held for more than a year before being sold, the profits are considered long-term capital gains and are taxed at a lower rate, which can be 0%, 15%, or 20% depending on the investor's income.

Which trading is best for beginners? ›

Overview: Swing trading is an excellent starting point for beginners. It strikes a balance between the fast-paced day trading and long-term investing.

Is Warren Buffett against day trading? ›

A classic Buffett quote indicates that he is no fan of day trading: “If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes.” This emphasis on holding a position for the long term means a very low level of trading activity.

How much money do day traders with $10,000 accounts make per day on average? ›

With a $10,000 account, a good day might bring in a five percent gain, which is $500. However, day traders also need to consider fixed costs such as commissions charged by brokers. These commissions can eat into profits, and day traders need to earn enough to overcome these fees [2].

Do people get rich day trading? ›

In summary, if you want to make a living from day trading, your odds are probably around 4% with adequate capital and investing multiple hours every day honing your method over six months or more (once you have a method to even work on).

Is day trading illegal? ›

Day trading is not illegal when it is done within normal trade hours and properly recorded. However, a similar practice known as late day trading is illegal and can be prosecuted under commodities fraud law.

How often do day traders lose money? ›

According to a study by the U.S. Securities and Exchange Commission of forex traders, 70% of traders lose money every quarter, and traders typically lose 100% of their money within 12 months.

What is the truth about day trading? ›

“Only 13% of day traders were consistently profitable over a six-month period, per a University of California study. According to a different survey, only 1% of day traders were able to consistently make money over a period of five years or more. ”

What is the best time to day trade? ›

The opening period (9:30 a.m. to 10:30 a.m. Eastern Time) is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.

Why don't day traders make money? ›

Time commitments. Day trading is not only incredibly risky, but it's also a huge time commitment to reach the point where you have a shot at being profitable over the long term, due to the massive learning curve. It's certainly not as simple as taking a quick online course.

What does Warren Buffett think of day trading? ›

A classic Buffett quote indicates that he is no fan of day trading: “If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes.” This emphasis on holding a position for the long term means a very low level of trading activity.

What percentage of day traders are successful? ›

Day traders are more likely to experience a 50% loss than a 50% gain. While there is potential for large gains, there is also a significant chance of significant losses. This is an important point to consider for anyone considering day trading as an investment strategy. Only 3% of day traders make consistent profits.

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