Day trading is a risky method that some people sell as a plan to use the stock market to get rich quick. Those who understand the stock market can turn day trading into a successful career, but it is also easy for people to lose large amounts of money. Day trading has many advantages and disadvantages that people need to know before going into this venture, and we are going to highlight the biggest ones below.
First let’s talk about day traders.
Day traders are people who buy and sell stocks throughout the day with the goal of capitalizing on highly liquid indices or small fluctuations in stock prices and making money. Like investing, the ideal situation involves buying a stock at a lower price and selling it at a higher price. However, the timeline shortens from years to hours.
Day traders want to make money by successfully making multiple sales in a single day. So, you can buy 1,000 shares of a particular stock and watch the price move in half an hour. You can sell the shares you just bought for a small profit. Each time they make a sale, the person subtracts the difference and makes a commission.
The biggest advantages and disadvantages of day trading
There are many benefits to being a day trader if you know what you are doing and understand the stock market.
Pro One – Instant Results
One of the biggest advantages of day trading is that it happens very quickly and you can see immediate results. It is so fast that you will know whether you have made a good choice or not within minutes of buying your stock. The trade will either go against you, and you will lose, or it will move in your direction and allow you to make a profit.
Pro Two – There is no overnight risk involved
Anything you manage to make or lose by the end of the day ends up in your account. So, you get more immediate results. You do not leave any of your trades to change overnight. The market can swing rapidly from one point to another, and you cannot exit a trade until the market reopens in the morning.
When you day trade, you pull out all your trades before the market closes, put them in your account, and start the morning with a clean slate. It doesn’t matter how the market fluctuates overnight.
Pro Three – It’s an adrenaline rush
Adrenaline is another huge advantage for day traders. Depending on the size of your account, you can make hundreds or even thousands of dollars if you buy the right trades and sell them at the right time in just a few minutes. The adrenaline rush when things go your way can be very addictive, and this is what initially draws people in. However, adrenaline can also make for costly mistakes, so you have to be careful.
Pro Four – No Time to Overthink
As you get with traditional trading, there is no exaggeration in day trading. The markets don’t stop long enough for you to make a prepared decision regarding your potential trades. Instead, you have to make divided decisions.
Markets can move very fast, so you have to jump at an opportunity when you see it without thinking much about it. This is another reason why people come to this type of business.
Pro Five – Various Trading Strategies Available
There are many trading strategies available to you when you day trade the major markets. Some of the most popular techniques people use to day trade include counter-trend trading, breakout trading, and trend-following trading.
You can experiment and see which one works best for you, and it is possible to incorporate a few different strategies into your trading.
Con One – You Might Need $25,000
When you first start day trading, you may have $25,000. Whether you do or not depends on how you want to trade. If you plan on trading options and stocks and you are trading on a margin account, you will need this money before you can start trading.
If you plan to trade using a cash account, this pattern day trading rule will not apply to you. Some people may not have any problem in getting this amount, while some people will have to struggle.
Con To – Smaller profit due to shorter stops
Generally speaking, people set their stop loss differently when they day trade. You will usually have smaller stop losses as there is a lot of potential to lose due to how fast this trading form moves. A smaller stop means you will have less profit.
Con Three – Addictive
Day trading can be extremely addictive, and this is especially true if you are on a streak where you are making profits. You can compare it to a casino game. It is very easy to make the wrong decision and wipe out large amounts of money, and then you end up losing more money trying to get back the original amount. This is why you have to be very careful and only trade with what you can afford to lose.
Day trading has huge risks associated with it, but it also has huge profit potential. If you are interested in day trading, take your time, learn how to do it properly, and never place a bet that you cannot afford to lose.
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Author: DLM Editor
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