The Truth About Day Trading Gurus!
By G.R. Krahmer / 3-11-2024
People on social media occasionally share the big wins they’ve made, often in a short time on speculative stocks. For some, this method of day trading is very tempting. What could be better than buying a few shares, waiting a few hours, and then earning €10,000. It all seems so easy.____________________________________________________________________________
1. The Reality about Day Trading
Making money consistently as a day trader is actually almost unheard of. Not that it is impossible, but it is a very risky way to invest your hard-earned money. So, for people who are considering starting day trading, it is important to avoid a number of pitfalls.
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Day trading is not for the vast majority of people. It is commonly believed that 95% of day traders end up losing money. And those who lose continue stubbornly despite not making a profit. If you are considering day trading for the first time, it is important to know that day trading
profits are not common. You can make a profit from it, but then you belong to a very small elite group. With day trading, you actually respond to the short-term volatility of a share on a specific day. You buy a share at a certain price and sell it later before the market closes. If the stock rises, the day trader makes a short-term profit, and if the price falls, he suffers a loss.
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2. Why day trading will probably cost you money
The main reason why day trading is a bad idea is the transaction costs. Depending on which platform you use and which type of investment you trade, you also pay a commission for every purchase and sale. These transaction costs must be recouped with a profit and can be expensive for day traders.
The market is by nature unpredictable and that makes day trading a difficult, and often losing, game. On any given day, stock prices are quite random from minute to minute, changing as new information emerges. When you place a buy or sell order in the market, you trade against a large group of established institutional investors with superfast trading equipment. The chance that you know something that these professional investors do not know is very, very small.
Successful trading is a rare achievement, and consistently successful trading even more so. There are a lot of reasons to stay as far away from this as possible. You have worked hard for your money, and you want to avoid wasting it unnecessarily. Especially when you consider that you also have to put in a lot of time, I think it is fair to say that day trading is not worth the risk.
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3. Can you day trade as a full-time job?
In most cases, day trading is not profitable, but it is possible. Investors sometimes manage to predict the correct price of shares and then rake in tens of thousands of euros. For example, these traders may have traded in penny stocks to capture oversized profits, or they may have simply been lucky. Just like at a casino.
In a study called: “Day trading for a living” they looked at all retail investors who started day trading the Brazilian Equity Futures Market between 2013 and 2015 until the end of 2017. In terms of trading, this is the third-largest market in the world. They found the following figures for all 19,646 new day traders:
5.7% only did it for 1 day.
50.8% between 2 and 50 days.
15.8% between 51 and 100 days.
13.9% between 101 and 200 days.
5.9% between 201 and 300 days.
7.9% have traded for more than 300 days.
They found that the more days they traded, the less likely they were to make a profit. Of the 1,551 people who had traded for 300 days or more, 97% had lost money. 1.1% earned more than the minimum wage and 0.5% had an above-average income. And the best day trader? He earned an average of $310 per day, with many major outliers. So you could make a reasonable income with day trading, but the chance is quite small. It is more likely that you will have to work extra to pay for your day trading.
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4. Watch out for Trading Guru’s
You will hear stories of certain traders who have made money for clients, and then ‘successful day trader‘, without having risked a single cent of their own money. They often post regularly or comment with their winnings under social media posts.
This so-called Trading Guru is a person who claims to have certain knowledge to make money with day trading. They usually offer educational courses for sale. The most common are: Online trading courses, services in which trading signals are provided or webinars/seminars.
If you think logically and you have found a winning edge. You hope that few people know about it so that you can apply it. If the strategy is used by everyone, it will no longer work. It seems counterintuitive that someone with a winning strategy would invest a lot of money and effort to sell it to as many people as possible.
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Someone who learns to day-trade as a private individual with his own money has little chance in that world. In very rare cases, a private day trader makes very large profits, but it is many times more common for them to lose their money, or themselves.
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5. How quickly can you lose money?
In the study: “Just how much do individual investors lose by trading?”, it becomes clear that investors who engage in day trading, on average every year about 3.8% lower than the
market achieve. These losses came through, mainly due to poor timing, commissions, and costs. It is important to know that, while these individual traders were losing money, the banks and institutions were actually making extra money from this. This suggests that individual traders have less information than the institutions. When day trading, always consider who is on the other side of the trade. Almost all the traders’ losses came from very aggressive trades.
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Conclusion – Day Trading or Investing in ETFs
Investing or investing generally does not necessarily mean day trading. Investing is a broad concept, but… it is common knowledge that the most efficient way to get steady good profits is to simply buy a portfolio of broad-based index funds and hold them for the long term. In the long term, buy & hold investors do not experience the same emotional rollercoaster that most day traders do. If you keep a low-cost ETF portfolio instead of day trading, the odds are now in your favor that you will make a profit over the long term.
Investors with long-term investments are better able to apply good diversification and reduce the chance of major losses. Day traders who only buy and sell a few different stocks are much less well diversified. Moving one of those stocks has a much bigger impact on their portfolio. Day trading is full of risks, and you can lose your money in a matter of seconds. And especially if you don’t know how to deal with risk. If you still want to day-trade, you can do so at FXFLAT or create a Trading212 account. Also, Tradingview can be a good platform, I also used it when I lost money with day trading. Now I see why.
