Day trading: The idea of making quick, easy money from the comfort of your bedroom through day trading has lured in many investors over the years. However, what the statistics says about their real chance of success may shock you.
Put simply, the definition of ‘day trading’ requires an investor to both open and close. Their investment position within the same trading day. This could mean opening a position in the morning and then literally closing that position just a few hours later for a profit or loss.
As such, the typical day trading investor is someone who requires. The immediate gratification that they have either made or lost money through their investment (AKA – someone with no patience whatsoever). Nonetheless, this glorified cache promises to make investors quick and easy money. In just a number of hours is what has attracted thousands over the years. As an expert economist and long-time trader Andrew Baxter describes it – this is a REALLY hard way to make money.
A cure for boredom
If you’re an investor who is simply just looking for something to do – then day trading may be for you. When you really think about it, if you want to be a successful day trader you have to be vigorously watching the market at every second throughout your trading day. By the time you take the kids to school or mow the lawn – you’ve missed the boat. This excitement of watching the fate of your money unfold live. Before you is something that investors who require immediate gratification have loved since the dawn of day trading. Exciting, yes. Practical, not so much.
The struggle is guaranteed but the success isn’t
Truth be told, day trading is HARD and hence why it only makes up 1% of the market. When you dive into the statistics of actually how hard this investment strategy. You tend to find some shocking figures. When co-host Mitch Olarenshaw did some digging, he found that approximately 95% of day traders lose money. The 3-4% break even after their annual fees and brokerage fees and just over 1% make any kind of decent return.
Purely on a statistical basis, for anyone looking to get into day trading ensure you know that the odds definitely are not stacked in your favour. Why? Well, there is no question that day trading is a professional arena that requires some really professional tools – high speed market data, Olympic psychological control, and expert technical analysis skills. Realistically, these are benefits that your large trillion-dollar institutional bank may be able to produce, not your average Joe Blow.
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Advice to those looking to dabble
If, after all the information presented in today’s blog, you are still one of those who would like to maybe dabble in some day trading – here are host Andrew Baxter’s top tips. Firstly, ask yourself why you are looking to day trade and if there are any major psychological traits driving this desire. Next, it is imperative to choose what kind of strategy on what kind of instrument you are going to run – something like Indices or CFD’s is where Baxter recommends playing.
And lastly is setting up on a platform that has direct and live market data, and also one that has a limited amount of brokerage to maximize your returns. One word of advice – manage your emotions. Day trading is no one’s fool and will require you to endure Olympic psychology control, which isn’t always easy when there are bills to pay and poor market conditions (for easier ways to make money trading, check out Australian Investment Education). That said, for anyone looking to day trade, proceed with a high degree of caution!