The coronavirus pandemic has left many people both short of money and with time on their hands. Long days stuck at home, bored, and perhaps with a cut in income have prompted many to look at day trading as a fun and potentially profitable new activity. Spurred by persuasive advertising online and on daytime TV, there’s been an enormous surge in sign-ups for trading apps and platforms, as well as a dramatic jump in visitors to websites that teach the basics of trading techniques.
A losing game?
However, the sad fact is that many of these new traders will lose most or all the money they put into their new hobby. Attracted by the promise of easy riches and a no-effort steady income, most will plough what savings they have into a series of rash trades that might leave them short of cash and cynical, vowing never to be taken in by such a scheme again.
Play to win
And yet, the truth is not that simple. It is possible to earn a steady living by day trading and to amass considerable wealth eventually. But it is only possible if you approach the activity professionally, putting in the hours and exercising discipline, patience, and emotional detachment.
As merely a casual pastime, day trading is an expensive hobby and could be called gambling. Taken seriously, as a full-time job, it is something entirely different: an ongoing process of strategy, research, and informed decision-making where profits are made through attrition and wins eventually begin to outnumber or exceed losses.
Where to start
The first thing the aspiring day trader needs to do is learn the basics. Familiarise yourself thoroughly with techniques, jargon and tried-and-tested strategies until you feel comfortable and relaxed with the idea of trading. Then choose an online broker that offers a demo account and play at being a trader until you feel confident enough to do it for real.
Not all brokers are suitable for day trading, so shop around until you find one that meets your needs. Read independent reviews, like this Fusion Markets review that gives you the pros and cons of a particular broker, plus details of the available tools. They’ll need to be able to handle a high volume of trades and let you enter and modify multiple orders in rapid succession.
Manage your expectations
Having realistic expectations is key to success in day trading. Many traders consider that they’re doing well if just 50% of their trades make a profit. You can even get away with losing more than you win, so long as your winning trades are for a larger amount than your losing ones.
Know your enemy
The fact is that most individual traders don’t have the starting capital necessary to compete with the professionals. These high-fliers either start with considerable personal wealth or work for a large corporation that funds their trading. They have access to more leverage and better technology and connections than you’ll ever have.
Remember, for every successful trade that someone else has lost out. These career traders see newly arrived amateurs like you as prey. While you’re scanning the latest news to see what stocks or commodities are likely to go up or down, they’ve already got the information and are buying or selling in bulk to capitalise on it, relying on small fish like you to take their bait playing catch-up.
Take your time
As suggested above, to do well in day trading, you need to dedicate your whole day to watch the markets, ready to buy or sell at any moment. Timing, and time management, is essential. If you can’t put in the hours, then you won’t get the rewards.
Patience is equally important. Start small with just one or two stocks that you can keep track of. Avoid penny stocks: they may be cheap, but they’re rarely worth it. Don’t buy or sell as soon as the market opens, but spend some time watching trends before making your move later in the day. As you gain experience and your instincts sharpen, you can start to expand your game.
Day trading isn’t a get-rich-quick scheme or a viable hobby, but it can be a source of income if approached as a full-time job. Stay disciplined, keep your emotions under check and follow the market, business news and the economy religiously. Set a budget, and don’t risk any money you can’t afford to lose. Don’t be discouraged from following your new interest, but remember that if something’s worth doing, it’s worth doing well.