Before I became a daytrader, I tried to invest in different intervals – from several days of investments to nearly 1 year. There were profits, losses; generally for me it wasn’t worth the effort. In spite of different assumption in keeping the position and I sat by most of my free time at the graphs. Therefore, I decided to transfer it on daytrading and I began the adventure on American stock exchanges. It was a bull’s eye.
After this change I notice very quickly what are the advantages and disadvantages of daytrading! I invite you to read the following article about them.
I will mark one thing; the fact that I find fulfilment in daytrading doesn’t mean that this type of investment will be suitable for you. I know many traders, who didn’t find fulfilment as one-session investors, but playing even in short term they had excellent results. As they say “Something for everyone” 🙂
Advantages and disadvantages of daytrading
I will start with advantages:
#1 Calm sleep
When I end sessions I know how much I earned or what loss I had – I don’t have a stress on the next day. It isn’t significant for me how Asia stock exchanges closed, because I don’t have any open position overnight, there is no risk of the gap at opening. However, I usually use such gaps in daytrading, still in the premarket.
Of course, it is possible to say that long-term investments rely on it (in which you won’t predict unexpected events). However, it didn’t fit my character. It may change along with age; what’s more I think that in a few years I will start to carry out the part of investment on short/average time, in order to have more time for pleasures and family.
#2 There is always something to trade
As a daytrader, I constantly participate in what is happening on the market. About flash crash newspapers wrote, as well as a lot of bloggers, analysts, etc., but there are only few who participated in real trading at the moment on the market. I participated. When the problem of Greece gained much more media attention and consequently affect change on the stock-market – I also used these events. Daily published news from the pharmaceutical companies (about which I often mention on the site) – and I have another possibilities to trade on the market.
Daytrading is the most active form of investment that strongly absorbs. It might be also a disadvantage – particularly for beginner traders, who not yet chilled the enthusiasm and emotion to look at the market, profit/losses – in a more well-conceived way.
#3 Payment of profits
As a daytrader you can pay your profits at the end of session. If you hold fixed trading capital – this way you systematically pay out surpluses. I settle in monthly periods, so I constantly feel the flow of earned money, without a need to increase my deposit.
#4 Freezing trading capital
By active trading, you constantly operate with capital. In contrast to trading for a longer period, in which you freeze the cash and you cannot use it.
#5 You finish when you want to
Trading session I end when I want to. I’m satisfied with my result in premarket, so that’s OK to finish the session. After 2h of session I state that I’m happy, and then I can also finish up. Nothing keeps me at my desk.
#6 You can do it wherever you are
If you are already earning trader, it doesn’t matter whether you will do it in Poland or sitting on the Caribbean beach. Personally, I try to perceive holidays as a rest, but sometimes combine one with another.
Daytrading disadvantages
#1 Trading hours
It may be very hard for you to combine the work with your attempts on the American market as a daytrader. After 8h of work, taking into account that you work from 8am to 4pm, you will be a little bit tired… additionally you won’t start the session at opening 3:30pm, neither you won’t prepare for it appropriately.
You must take it into account, because as at every work – exhausted and tired out you always act less effectively.
#2 More difficult manual trading
In daytrading increasing % of traders are algorithms. I feel it every day when computers forestall my orders. Peculiarly painful it is in scalping.
#3 Patience
As a daytrader you usually have opened positions. However, many daytraders have problem with not-having any position. They have a need of being always in the opened position. This causes that they open a completely unconsidered positions, only just to feel emotions associated with trading.
#4 Commission level
Not every broker’s offer is suitable for daytrading. Active trading must equal profitable trading. If you play a lot, you generate a large volume – and you pay a large commission appropriately. So it is necessary to choose such a broker, which will provide commissions on a low level.
#5 Pattern Daytrader Rule
Broker’s requirements as for the minimal level of trading capital, if you planning daytrading. This capital amounts at regulated brokers 25 k$. Of course, there are ways to avoid this rule.
#6 Family and social life
For me the biggest complaint of trading hours in the USA is that from assumption I trade from 1pm to 10pm. Of course, I can finish when I want, but I often trade all day long. It affects to a large extent the time which I spend with my family and friends during the week. As they say ‘one thing or the other’. Currently, I’m still able to function this way, but I realize that within a few years I will be forced to reduce the number of trading hours or slowly to go on slightly different intervals.
Summing up
As you can see there are as many advantages as disadvantages in daytrading. These are my personal feelings. I think that what for me can be an advantage, someone else may consider as disadvantage.
Therefore, if you are considering daytrading, apart from developing the effective strategy, you should think what benefits you will have from it. What’s important, think also above disadvantage – particularly of trading hours. It is the most difficult thing, particularly if you have a family.
Remember to always have a stepping stone from trading. Something what apart from the session hours will let you relax, to reset and to approach another session with a clear mind. Daytrading is a more stressful trading style than investing on medium- or long-term.
Are you a daytrader? Or maybe you play on a longer-term? In your opinion what are pros and cons in trading?
