Day Trading Is Stressful, But Why Do People Still Love It?
Day trading is a game of dumb luck, but is it? Every day many traders bring wealth to their lives by day trading. And they do not have a one-off win but consistent earnings. Can dumb luck do that? We believe that things get more complicated than guesswork.
If so, day trading must be stressful work as traders have less than 24 hours to do everything, from market trend analysis, strategy development, and tactic adjustments, to risk management. As we have known, the markets do not stay still but aggressively move in either favorable or unfavorable directions. Things can become much more stressful. Still, many people choose to day trade. Why?
This article highlights the basic knowledge and helpful information about day trading, both its challenges and rewards. So, you can get a comprehensive view of this trading type as a valuable takeaway!
How Does Day Trading Work?
Day trading is what it sounds as all the trades should be completed by the end of a trading day. Anchoring on the status of the financial markets and the future market movements, a trader decides to execute a bullish or bearish trade.
Specifically, a bullish trade will bring about profits when the price of the underlying asset rises. Meanwhile, a bearish trade is an effective action when the price drops. A wide range of assets that you can choose to day trade includes:
- Forex refers to the exchange of currency pairs, such as EUR/USD, GBP/USD, etc.
- Commodities mention the activities of buying and selling raw materials, such as base metals, energy, corns, crude oil, gas, silver, etc.
- Stocks involve buying and selling shares of many firms, such as Alphabet, Netflix, Twitter, etc.
- Cryptocurrencies refer to the purchase and sale of bitcoins and altcoins.
- Indices involve trading assets such as Dow Jones and S&P 500 indices.
In general, you can day trade almost all instruments. Yet, it does not mean that day trading is the ideal time frame for all kinds of traders. The popular assets of day traders are forex, stocks, and options trading. The fluctuation of price actions in these markets is a double-edged sword as it can generate chances to earn higher or pitfalls to lose higher!
Why Is Day Trading A Real Challenge?
As the name suggests, day trading has less than 24 hours to collect databases and market movements, develop strategies, adjust tactics, manage money and risk, etc.
Do you think it might be an overwhelming workload? The answer seems obvious, yet the breakdown of details about the impactful factors can help you understand day trading better.
The tumultuous ups and downs of price actions are the first challenge that a day trader must face. It is tough for beginner day traders who have no experience in technical analysis and market sensitivity.
Moreover, there is more than one element creating and changing the directions of market trends and price actions. The psychology of day traders, relevant financial events, etc. always comes up at the time we expect the least. So, risk management is a close ‘companion’ of day traders, and so is anxiety.
Imagine you have to deal with unknown things at the stake of losing all your investments, remaining calm is a real achievement. So, day trading is not only a game of strategic minds but also a tough game that challenges your mental strength.
Yet, Why Do Many People Still Love Day Trading?
To answer this question, it is necessary to address the profitability and advantageous points of day trading.
First, for those who have wanted to see their investments grow in a short-term run, day trading is a nice suggestion. Unlike investing, day traders hold positions for seconds, minutes, and even hours but they have never held overnight! So, you will know whether you win or lose after the trading day closes.
Also, day traders can take advantage of leverage to enlarge their potential profits. Of course, it is not easy amidst such a volatile market, yet you do not trade with bare hands but with tools and the sources of proven frameworks.
For example, you can set stop-loss orders and profit-taking levels to minimize the risks you undertake in case of glooming market projection. According to professional day traders, you should take less than 1% risk of your trading portfolio. So, if the value of your portfolio is $30,000, the risk you should take is unde$300.
Many people have followed such a rule and managed to save them from expensive failures and tumultuous price actions. So, it is not a dead end to earn consistent profits from day trading. There are still ways that you do not know or have not applied properly.
If you follow the 1% rule above along with the application of technical analysis and stop-loss orders, etc., day trading profitability will be an impossible dream. The key is to take discipline seriously!
So, Is It Worth It?
After reading the benefits and challenges that a day trader needs to know, the answer to whether day trading is worth it or not becomes much clearer. I cannot and will not write this to encourage or discourage you to day trade as every choice should be for your benefit and by your mind!
Day trading can be a sweet are or a dazzling trap, which all depends on the skills and techniques you apply. There is no magic button for success in all cases, especially when the market always has things go awry.
Risk and reward are actually the same in the form of volatility in market movements. So, if you want to earn higher profits, you need to learn to decrease the risks. It highlights the power of technical analysis to decipher the hints for the next market trends and price actions.
Not only day trading but also other trading types include risks in the process. We agree that day trading is stressful due to the fast pace of limited trading time. Yet, if you learn to day trade properly, as we mentioned earlier, and find powerful tools, day trading becomes more fascinating with high profitability and less challenging!
References:
https://www.investopedia.com/articles/active-trading/053115/average-rate-return-day-traders.asp
