A lot of novice traders think that day trading (or day-trading) is risky, but you can make a million bucks. You can get started with almost no money, trading penny stocks. You can do it in your underwear, although you might end up like a zombie staring at a computer screen all day long. Best of all, you don’t need any training to be successful.
Those are some of the popular myths about day trading, also called momentum trading, in which you buy and sell a position in a single day. Let’s look at each of these myths in turn, and find out the truth about day trading.
- Day trading is risky. Truth: it can be, but doesn’t have to be. Day traders who have studied at Online Trading Academy follow the same strategy as our long-term investors. They buy when they see an imbalance of supply and demand which signals a low-risk, high-potential opportunity. If anything, they take on less risk because they always liquidate their positions at the end of the day and are not exposed to an earnings surprise or natural disaster that might happen overnight when the markets are closed.
- Day trading is an easy way to make a million bucks. Truth: there’s never an easy way, though some have succeeded and you can read their stories in various student quotations on tradingacademy.com as well as hear them in the halls of our financial education centers. You’ll also find many people who consider day trading a reliable source of primary or supplemental income, and no more exotic than any other job.
- You can get started with very little money by trading penny stocks. Truth: trading penny stocks is a path to poverty, not wealth; there’s a reason those shares are priced so cheap. You can get started trading low priced (not penny) stocks for a few hundred dollars, but the commissions will eat into your profits. At Online Trading Academy we generally recommend that a new trader start with a minimum of $25,000, which is also the amount required to trade on margin (which involves higher potential profits but also greater risk).
- You can day trade in your underwear. Absolutely true! The ability to set your own hours, spend quality time with your family, and trade from a home office are some of the biggest benefits of day trading. One of our students called it “commuting with my coffee cup” as she travels from kitchen to her upstairs office.
- You might end up looking like a zombie. Truth: only if that’s your lifestyle or fashion preference. Very few traders who have been trained at Online Trading Academy are at their computers every hour the market is open. More likely, they’ll only make a few trades a day and only when the market delivers opportunities that meet their criteria; if the market doesn’t cooperate they might not trade at all that day. Many of our students do all their trading during the first 90 minutes after the market opens, then take the rest of the day off.
- No education is required to become a successful day trader. This is the biggest whopper of them all, and the reason why most everyday investors barely make money (or lose their shirts) while big banks and Wall Street institutions are consistently profitable. Professional traders and investors have a plan, a predefined set of objectives for their trades, and the experience and self-discipline to follow their plan. Education is required to develop all these traits. It’s true you can learn them through trial and error, but that’s a very expensive education because you are in effect paying the market to teach you not to keep making the same novice mistakes.
If you would like to meet some real (not mythical) day traders and learn something about their success, register for a complimentary Power Trading Workshop at Online Trading Academy. You’ll also find out why our patented supply and demand strategy is effective for every time frame, from day trading to retirement investing. Sign up here.