Yes it’s true, Day Traders are Making a Comeback on Wall Street [1]! For years there have been quite a few of us, but I suppose the steady uptrend which started last summer and ran for nearly 8 months is part of the reason. Dirt-cheap commissions at direct-access brokerages [2] also contributes to the rise of day trading, along with just greater education and awareness of active trading.
I used to purely be a day trader, but I’ve been swing trading [3] more in the past few years. I still make a fair amount of day trades when I see inefficiencies that I feel I can capitalize on, and I’ll continue to do so for as long as there are opportunities to pull some profits out of the market, in spite of the ongoing debate [4] about day trading.
If you’re considering doing some day trading, you’ll no doubt find it easy to get spooked away. With countless stories of traders who got their head handed to them [5] (via TraderMike [6]‘s QuickLinks [7]), you might change your mind before you ever even get started! However, there are a few things to keep in mind that are positive aspects of day trading:
Day Trading Helps You Manage Risk
It’s true! By looking “under the microscope” and shortening trading timeframes, the risk is inherently lower on a per-trade basis. Overnight gap risk is not a factor. Event risk is limited. Stated more plainly, closing out trades by the end of the day would have saved countless “investors” a lot of money by not holding onto losers!
Day Trading Offers Higher Leverage
Leverage can be a double-edged sword, and should be used only by those who understand & respect it. If you meet both of those requirements, you can get up to 4:1 leverage for day trades that will enable to you profit by a greater percentage than would be possible without margin. That’s a big benefit that offsets the shorter holding times of day traders, but I cannot stress the importance of understanding leverage and respecting it.
Day Trading Allows Money to Compound Faster
This is probably the biggest advantage of day trading, as the more rapid turnover of funds and adding up more small gains will lead to the faster compounding of money. Einstein called compound interest “the greatest mathematical discovery of all time.” That certainly supports the concept of frequent incremental gains adding up very rapidly for day traders, and it’s hard to ignore. Gary B. Smith [8] made a great point a few years ago that a trader starting out with $5,000 who increases it only 0.5% each trading day will end up with quite an impressive sum after 5 years: $3,000,000!
So of course, do your homework, determine what trading timeframe is right for you and your needs, and investigate some day trading strategies [9]. If you’re slow to act or if you’re a compulsive gambler, then day trading is absolutely not for you. However, it just might suit you and provide you with another trading method to build up your account.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com [10]
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]