Should you begin day trading? here are the pros and cons

Should You Be Day Trading? 

In this post, I'll show you the advantages and disadvantages of day trading so that you understand exactly whether you should consider it.

Because these days, day trading is super popular. And there are numerous advantages to day trading, however there are likewise some difficulties.

The 4 Pros of Day Trading

Let's initially go through the pros of being a day trader, then we'll dive into the possible cons.

Well, first off, what does it mean to day trade?

Day trading implies that you are opening and closing a position within the very same day. In a lot of cases, traders will hold positions for just a number of minutes.

That's what many day traders do. When I'm day trading I'm usually holding a position anywhere in between 3 and 20 minutes. That is really common for day traders.

What are the pros of day trading?

One: You will see instantaneous outcomes

First of all, it's fast and you will see immediate results. And what do I suggest by instant outcomes?

Well, within a few minutes you currently know whether you're right or incorrect, because either the trade moves in your direction and you'll have the ability to make a profit, or it moves against you.

At the end of the day, after you have done some day trades you currently know how well you're doing?

This brings me to number two ... 

Two: You don't have overnight risk

Whatever you realize by the end of the day is in your account. So for that reason, the results are more instant.

Consider swing trading for a moment.

You see, the method I swing trade, I'm in a position normally between 5 and 20 days. So this is where you require to offer the trade a long time to develop.

And this is where you will see some ups and downs and you do not see instantaneous results that you make with day trading.

With the overnight risk, as you understand, right now markets are moving insane, and some people like to not have overnight risk because you don't know where the markets will open in the early morning.

Let's take a look at this right now. Today, you can see the markets were opening higher.

And if you look at stocks like Kodak, for example, it unexpectedly opened way higher over night.

Another one is ADT, that just recently opened with a huge space.

Now, clearly gaps can work in your favor as well as against you. Let me give you an example of one that might be working against you, Intel.

So this is Intel, and as you can see, it was well trading in between $60 and $62. Unexpectedly it plummeted down to $50.

As you can see the charts showed a long signal, then Intel fell out of the sky after their earnings report.

These are the kinds of things you will avoid when day trading. 

Three: It's an adrenaline kick

It absolutely is an adrenaline kick?

I mean, you know that you can make numerous dollars, perhaps even thousands of dollars depending upon your account size in a matter of minutes.

It can be extremely addicting here. It absolutely provides you the adrenaline kick and this is why people love day trading.

Although it might feel good, being all jacked up on emotions is not a recipe for consistency when trading. 

Four: There is no overthinking

The other thing with day trading, there is no overthinking and here's why.

When day trading, you have to decide in a flash. I mean, the markets do not pause for you.

The marketplaces are moving, so the marketplaces are moving quickly, and when you see an opportunity you need to jump on it right now.

And this is why some individuals like day trading, because this way they don't have the propensity to overthink.

With day trading, it's actually hard to overthink things. With day trading there's no analysis paralysis due to the fact that if you snooze, you lose.

These are the 4 significant pros based on my experience that I see. And at the start of my trading career, I utilized to day trade a lot.

These days, after numerous, many years of trading and as I'm aging, I choose swing trading.

The 5 Cons of Day Trading

Now that we've spoken about the pros of day trading, let's talk about the cons since there are some essential drawbacks that may make you think twice about day trading ... specifically if you're brand-new to trading.

One: It might need $25,000

When day trading, it might require $25,000 to day trade.

Now, why do I state it might need $25k?

First off, this is only real when you're trading stocks and alternatives, and it is just true when you're selling a margin account.

If you're selling a money account, the pattern day trading rule does not use.

Once again, $25,000 for you might not be an issue, for other traders they may struggle to come up with it.

Two: A smaller stop means smaller sized revenues.

Another con is that you can use a smaller sized stop, but with a smaller stop it likewise implies that you will have smaller sized profits.

Now, let me discuss this to you, since this is where I wish to spend a minute and reveal you exactly what it implies.

Some people don't comprehend this relation, so I wish to go to the charts and have a look at Microsoft.

Here is a daily chart of Microsoft:

Microsoft jumped today.

Now, at the extremely bottom here, you see an indication that is called the typical daily variety.

What does the typical everyday variety mean?

The typical everyday range means how much does a stock proceed average from the high of the day to the low of the day.

And today, the average daily variety in Microsoft is $4.60.

So this indicates that when you are swing trading, your stop loss, obviously, requires to be at least $4.60. Otherwise, you will get stopped out.

Now, here's a general rule that I personally like to utilize: If I use this as a stop loss, I want to see twice as much as an earnings target.

So here in this case, I'm looking for 2 times the stop loss as my revenue target. This means my revenue target is $9.20.

Now, if you are just trading 100 shares of Microsoft, then you understand this is per one share. It would be $460 dollars as a stop loss on 100 shares, and $920 as an earnings target.

Now, let's have a look at a five minute chart.

Here you see a five minute chart from today.

If you're trading on a five minute chart, let's say that you're trading the breakout above, let's state $214.50.

Where would you put your stop loss?

You can place your stop loss at around $213, so it's a rather tight stop not offering you much room. This means your stop loss is only $1.50.

This is where you get the idea, if you're using a stop loss of just $1.50, you might only make around $3 since we have barely scratched $217 here.

It is very, really essential that you understand: The smaller sized the timeframe, the smaller your stop loss, and therefore the smaller your revenue targets.

Keep this in mind.

Three: It can be extremely addictive

Now, what is another con of day trading? Well, it can be really addicting.

Day trading for some individuals, it's nearly like a slots in a casino.

I've seen people erasing their account due to the fact that they got addicted to day trading.

When you're swing trading, like I choose doing nowadays, you only place a trade a day and after this, you're done and you can unwind.

Four: You have no time at all to believe.

Another con is that you have no time to believe.

And again, this can be a professional because you can prevent overthinking but it also causes impulsive trading.

And this is what I see lots of traders are doing, particularly day traders, that they are trading impulsively.

Because they see that the marketplace begins moving and now they are terrified that the market may escape.

This is in some cases where FOMO (Fear Of Missing Out) starts.

And so they rapidly buy, and they often purchase the high.

So no time to think can be a pro, but it can also be a con due to the fact that this causes spontaneous trading, and typically, impulsive trading never worked for me. 

Five: The threat of overtrading.

Let's talk about a 5th con that I see here, and this is the risk of overtrading or likewise revenge trading.

What do I indicate by this?

Specifically when a day trader begins in the early morning and has a couple of losing trades here, the trader might say, "Oh, if I just trade more, I will make back the cash that I lost.".

Now I don't know about you, but what I experienced when I was overtrading or vengeance trading, generally when I had a bad day, it simply worsened.

And this is where I see many day traders erasing their account by just overtrading, vengeance trading, and doing a great deal of spontaneous trading here, and doubling down.

Summary

These are the primary advantages and disadvantages of day trading that are based on my own personal experience.

When is day trading for you?

Well, I want to state day trading is not for you if you like to examine your trades and think of it prior to you enter.

So if you want to take some time and state, "Alright, let me have a look at the trade and think about where will I positioned my profit target and my stop loss" then day trading is not for you.

The marketplaces do not pause for you, the markets just keep moving. And specifically nowadays, the marketplaces can be moving fast.

Day trading is likewise not for you if you might have an addiction problem. And hey, you understand yourself best, right?

I mean, do you think that you could get addicted to day trading? The majority of people can, and no addiction is a good dependency, right?

Now, finally, day trading is not for you if you quickly get stressed out or overloaded. Once again, you understand yourself better.

Day trading is incredibly quick, it's like driving on the German highway at 180 miles per hour. If you're an experienced chauffeur, it's enjoyable. But if you quickly get overwhelmed, then day trading may not be for you.