The 7 Factors That Hold People Back From Day Trading

by | BiggerPockets.com

Day trading is appealing to many people; it seems relatively simple with the promise of making large sums of money over the course of an afternoon. The premise is easy enough to understand—pay attention to fluctuation patterns in individual stocks, buy them at their lowest points, and turn them around for a profit as soon as they pick up steam.

However, few people ever give day trading a serious attempt, and even fewer make a real career out of day trading.

Why is this the case?

What Stops People From Day Trading?

These are the biggest reasons preventing day trading from being a more popular career choice:

1. Public Perceptions

Some people compare the process of day trading to gambling, though this isn’t an accurate or fair comparison. Day trading is just like investing, except it happens at a faster frequency and at a higher volume. Though some people may treat it like gambling, the most effective day traders use complex formulas and instincts fueled by years of carefully tuned experience to make their decisions.

pick-stocks

2. The Fear of Risk

Some people avoid day trading because of the risk involved, and that’s certainly a valid concern. Day trading is riskier than conventional buy-and-hold investment strategies, but it also has a higher potential payoff. If you can’t tolerate the risk, there isn’t much you can do—but chances are the risk is lower than you think (provided you put the work in).

3. Not Knowing Enough

Even the most experienced day traders feel like they haven’t learned enough—and that’s actually a good thing. It’s virtually impossible to learn everything there is to know about the stock market or the economy, and to be a successful trader, you have to commit yourself to a perpetual course of learning. At some point, you have to build the confidence that you know enough to hold your own, and from there, you’ll be able to leverage your experience and learn from your ongoing trades.

4. Insufficient Capital

You won’t make much money per share when you day trade—you’ll be looking at profits of less than a dollar per share in most cases. To be profitable, you need to be trading at sufficiently high volumes—and if you don’t have the capital to make that happen, day trading may elude you. That’s why it’s a good idea to use other people’s money; serve as a manager, day trading others’ assets, and collect a percentage of the profits for yourself. It may be hard to earn trust right away, so start with a smaller sum of money until you get the hang of things.



Related: Should You Put Your Money into Stocks or Real Estate?

5. Not Knowing Where to Start

If you’ve never day traded before, you might be confused about where to start. Fortunately, there are ample resources available online to teach you the fundamentals and support you when you make an error. YouTube tutorials, online forums and communities, and day trading blogs are all good sources to build a foundation, and after that—you’ll have to learn through real experience.

6. A Lack of Mentorship or Support

If you don’t have someone specific to show you the ropes, or at least a peer who is also leveraging day trading, you may feel unmotivated to pursue the strategy. However, you won’t have to look far to find the support of other people. Attend networking events, meet ups, and other gatherings of like-minded investors in your area, and ask around about day trading. If you can’t find an experienced day trader directly, you’ll likely run into someone who has an independent connection to one.

Related: Are You Still Picking Stocks? You Are Ridiculous. Here’s Why.

7. Losing Big After an Initial Attempt

Sometimes, people try day trading, only to lose a significant sum of money after their first attempt. This can be disheartening—and a good lesson about the nature of risk—but it’s not a reason to abandon your plans altogether. Think about how much time and effort you really put into learning the ropes; could you do better if you spend a few dozen more hours practicing and learning?

Is Day Trading Profitable?

So, is day trading a profitable strategy? Is it something you can build a career from? You’ll get different answers depending on who you ask, but with the right tools and enough experience, you should be able to turn a profit based on your analyses and insights. The big question is whether you’re willing to put in the time, effort, and risks necessary to get to that point; most people aren’t, so they never give day trading a real try. However, if you do invest in your education and experience, you may find that the challenges aren’t nearly as tough as they seem at first glance.

Would you ever try your hand at day trading? Why or why not?

Leave a comment!

About Author

Larry Alton

Larry Alton is a professional blogger, writer and researcher who contributes to online media outlets and news sources. A graduate of Des Moines University, he still lives in Iowa as a full-time freelance writer and avid news hound. In addition to journalism, technical writing and in-depth research, he’s also active in his community and spends weekends volunteering with a local non-profit literacy organization and rock climbing.

22 Comments

    • Andrew Lee

      That’s my question precisely–why is this article on this site? Is this a mistake? I’m heavily invested in the stock market and I’ve read countless books on stock investing, and every credible statistic I’ve seen shows that 99 percent of day traders fail to consistently earn profits for even one year. We can all get lucky on a couple of trades, which I have (made 400% return in four months on a hunch with one stock), but I realized that was dumb luck and I don’t make a habit of it. If you want to lose money fast, try day trading. We have a very substantial stock portfolio but it’s all long-term investing, not speculating.

    • Greg Scott

      A good friend of mine made a lot of money every month from day trading… until he didn’t and lost everything he had made for months and months. Like most day traders, he eventually lost.

      My friend is now a successful real estate investor where the odds of actually making money are greatly in your favor.

  1. Day trading is small fish attempting to compete against Goldman Sachs and Chase and all the others that have much more powerful computers, programs, staff, etc. Still waiting for all the day trading billionaires from 20 years ago to earn their money back.

    Please don’t turn Bigger Pockets into a mouthpiece for Get Rich Quick schemes. Buying and owning rental property ( as well as other forms of real estate investing) is a viable and reliable way to make a living and generate wealth. Day trading is a niche business for a very small percentage of people.

  2. Abel Teklu

    Bit confused how this made it to the BP front page. Larry Alton – do you yourself day trade? If so, could you share what your returns have been over the past 15+ years and the strategy employed (your bio doesn’t mention anything about being a trader)? I ask because I have a lot of friends who are traders at banks and hedge funds, and I have yet to meet a single person who can consistently beat the market using any sort of [legal] short term strategy, whether its momentum trading, technical, arbitrage, etc etc.

    Also, this could just be me, but suggesting beginners borrow other people’s money to day trade seems very irresponsible (and linking to Dave’s article about private money for student housing doesn’t quite make sense to me).

  3. Great points. Additionally, no tax benefits, and outgoing commissions on every trade. I have been in the market since 1993 and would never risk my real estate earnings on day trading. Buy and hold has been proven to work pretty well in REI and stocks.

  4. John Mclain

    Actually daytrading and realestate compliment each other very well. That is of course if you approach daytrading properly, as a business and not a get rich quick scheme. I have been a day trader for 20 years and it has given me the capital and time to become a realestate investor. While daytrading can be highly profitable it is neither easy nor tax friendly.

    That is were daytrading and realestate work well together. As we all know realestate can be very tax friendly. By combining trading income with realestate income I have both a short term income source and longer term tax friendly revenue stream from realestate.

  5. Jiri Vetyska

    Day trading is just another job, a very stressful one at that. According to available statistics, a very small percentage of people actually make profit. Especially in today’s age of big data and automation, it’s best to leave it to the sophisticated software to find and execute trades, as you can’t physically compete with that as a human. Especially, as a human with emotions.

  6. John Mclain

    The big banks and brokers are actually the source of most day traders success. The big players can not move quickly. This is due in part to the enormous size of thier positions and a set of complex rules that they must abide by. This creates many smaller opportunities missed by the big boys that traders like myself can exploit. The big boys are not the problem they are the reason I can profit.

    As for high frequency automated trading it is of no factor to a day trader. If anything they add liquidity to the market and actually improve my order fills. There is also a trading technique that watches the spread between the bid and the ask and thus allows you to follow high frequency traders. I don’t use that technique but other traders do.

  7. Ryan B.

    I am sorry but is this a joke? Two things, 1) Why is this on BP, which is a website dedicated to real estate? and 2) encouraging people to take up day trading is very inappropriate advice. I have worked in finance for over 10 years and know a lot of traders at hedge funds and banks. Professional traders (people employed by hedge funds and collecting salary) are lucky to hit 20% annual returns and that is with institutional infrastructure in place. Day trading from home with no professional infrastructure is a fantasy. Traders are competing against high-frequency algorithms that have edges in speed and information.

    The worst part is that the author does not provide any insight or data to support this article. It reads like he just Google searched day trading and then got some ideas from the year 1997 and tried to pass them off as content. The bottom line is, coming from someone who works in this industry, do not try to day trade from your home. Not only will you most likely not make any profits, but more than likely you will lose a large chunk of money.

  8. I thought I was a day trader for a short while. I made a nice little profit until I made a bad trade. But I still made enough to help us buy our first rental. I wouldn’t necessarily recommend it… but thanks for writing this article! Maybe I should jump back in the market to help us buy rental number 2 🙂

  9. Steve Ryan

    Here’s what holds me back from day trading: Everything that can legally be known about a stock is already built into the price (by professionals who have far more expertise, knowledge, and time than I do, as well as by the near-instantaneous algorithms they’ve written). That might sound defeatist, but it’s also liberating. I’ve gotten lucky with some and unlucky with others, but in my 20-ish years investing, I’ve made a lot more than I would have in a savings account. Just buy something and avoid fees and taxes like the plague.

    • John Mclain

      I see what you are saying but let me point this out. You tell me what you think. Price moves. It moves for a reason. We often do not know what that reason is and no one can predict were it will go. If there is movement there is the potential to profit from that move. If there is movement from one price to another price during this time of movement the market has not proced in all things about the stock. It is in fact re-evaluating the new price point.

      I and others like me use technical analysis to identify these movements, determone if they are real enter and exit at what we consider optimum technical points. Are we right all the time? Not even close. But we cut losses early and let winners run.

  10. jay esk

    The argument against day trading is that taxes and fees typically erode most of the profit.

    Also, make sure you’re aware of all the literature on “timing the market” and why so many people advise a long term buy and hold or dollar cost averaging strategy.

    Good overview here —> https://www.ifa.com/12steps/step4

    And great site in general to discuss stock market investing.

    • John Mclain

      While the tax situation is an issue, if taxes and commissions erode your profits away you are not doing correctly. Although I think about taxes (hence realestate) I cant even tell you what I pay in commissions. Dont care actually. As long as profits exceed my expenses i am good.

  11. Nick Eckemoff

    Not sure why this is on biggerpockets…

    After countless books and other research, I tried to day trade. I made money some days and lost money other days maybe even weeks. Typically there are 10 dud trades (neutral or slight loss/gain) for every 1 big winner. It’s a really stressful draining job that easily places you into a negative mindset, which leads you into making poor decisions out of fear at a certain point and then you start losing big.

    The nature of day trading gets you caught up in short term trends and data. You miss out on long term trades, where instead the same profit or loss can be made, but you wouldn’t be as actively engaged. Many big wins happen overnight before you are able to day trade and a day trader doesn’t keep anything overnight. Early morning during first 30 minutes after markets open is when stocks move the most, but then they settle and fluctuate slightly, so during most of when day traders work, they already missed opportunities. Day traders avoid holding stocks during earnings reporting, but this is also when stocks make the biggest moves.

    I find that swing trading without a margin and trend following is the best way. I buy a stock that has an up trend, no abnormal statistics, and good fundamentals. You must understand how much it’s normal for it to fluctuate and ride out the down turns. There will be unusual sell offs and the worst thing to do is panic and sell too. After a few weeks, you re-evaluate if it’s time to sell or perhaps you are riding a wave up and you happily keep the stock. Much less stressful and frees you from a day trading job.

    All data points to that longer term traders make more money than short term traders. Day traders always lose money and give up. They are fish food for competitors at big financial institutions. Still there will be fools who think they can outsmart the market. A few wins will encourage them and they’ll post ‘day trading is great’ online only to disappear forever after a few weeks or months. I challenge someone to come forth and honestly tell everyone they’ve been day trading for 1+ year from home and have consistently made a profit to equate at least 100k salary. People are much better off working a real job instead.

    I think this article is providing HORRIBLE advise to suggest someone to day trade with other people’s money. This will get you into big trouble quick. A margin account lets you trade 4x the amount of cash you have, meaning 100k allows you to buy 400k of stocks, allowing you to win more, but also loss more. The loss will come straight out of your cash, where 5% loss will mean your 100k cash turns into 80k or a 10% loss will mean your 100k turns into 40k…etc. This is exactly how people get ruined.

    In summary, I can’t recommend anyone to day trade and this article isn’t doing a good service by encouraging others to do so. Longer term stock investment is fine however I think you can make more money in real estate so why bother with stocks?

    • John Mclain

      Actually I think the authors article is spot on in regards to the reasons people do not get into day trading. Day trading is not for everyone. You need to stick with what works for you. There nothing wrong with swing trading if that is your thing. I just don’t like taking on the added risk of holding positions overnight.

      All I am sayimg is that if you have a business model like flipping you will have periods were your cash is tied up in a deal and times when you are cash rich with money in the bank while you search for the next deal. I prefer to put that idle money to work daytrading while I wait. It also has the side benefit of putting me in contact with other traders who have risk capital available for investments. This makes it easier for me to raise capital for realestate deals. Thats just another example of how two seemingly unrelated things compliment each other.

      • Abel Teklu

        John – thanks for your comments, always helpful to hear the other side of a conversation. Do I understand correctly that your strategy for the past 20 years is to use technical analysis to make trading decisions and your positions are very rarely held overnight? So when you say you cut the losers and let the winning positions run, does that mean you just let them run until end of market closing that same day? Could you also share an example of a trade and your sharpe ratio?

        Sorry for the numerous questions, it’s just interesting to me as I haven’t met someone with a hold period that short have a successful long-term track record. I agree with you that markets are not efficient, and like your previous post mentions, price moves and no one can predict where it will go (not even hedge funds or banks), so I just haven’t been able to understand how technical traders can then profit consistently, especially when they have very short hold periods. The only thing that has made sense to me is a long-term value investor approach, but it could also just be a personality fit. Thanks!

        • John Mclain

          No problem. I would happy to help. The fact is that I have been inundated with messages asking similiar questions. I am trying to find a way to answer them all efficiently. Lets answer your questions.

          Yes I am in and out of trade the same day. This is largely risk management. Overnight when markets are closed or illiquid things can happen that will move price but it will not be reflected until market open with an instant gap up or down. You could literally go to bed with a winner and wake up with a loser just because, overnight a bomb went off in the middle east or something similiar.

          It would be like having a rental property vacant and leaving the doors open and the locks unlocked all night. Your likely to wake up to all of the appliances being stolen. It is possible to hold positions overnight but other protective measures need to be taken. I have done that also.

          I use technical analysis along with some fundamental analysis to enter and exit trades. While the techniques can very from trader to trader all TA strives to find an entry point where if you are correct the trade has room to run and if you are wrong it is tecnically evident and you close the trade quickly. Thus losses are small and profitable trades run longer. TA can also be used to identify the exit from a trade. This is what I meamt when I said “cut losses early and let winners run”

          I hope I answered most of your questions. If not let me know i will try to address them. Also, I have a bunch of people with similiar questions. If you have any thoughts on how to address them all at once that would appreciated. I can’t figure out how to do it from the inbox efficiently.

  12. John Mclain

    Hello everyone,

    I have recieved quite a few massages from people interested in daytrading. I am sorry that i don’t have time to respond to each one. In an effort to address everyones questions I thought that I would just answer them as best that I can in a single post. So here we go, 5 minutes of straight talk about trading from someone who is not trying to sell you anything.

    Whats a day in the life of a trader like?
    I get up and go to my office/trading room in my home at about 8 am. I will check the overnight markets in asia and europe along with todays news. At about 9:30 ish I begin to watch the computer screen for trades. On average I will make about three per day. I am normally done by lunch but on a good day I may stay in a little longer. This leaves me with a big chunk of the day to other things like realestate etc.

    Is it hard to learn?
    Yes it is. Its worth it. I make a good living at it and still have the capital for realestate investing. You can not learn this from a weekend seminar. It will take hundreds of hours to master the skills required.

    How did you learn?
    I am mostly self taught but I did also have a mentor in the latter stages of learning. I do not reccomend self taught but i do highly reccomend the mentor part.

    Do you need a lot of money to start?
    No but keep in mind the more you trade the more you make. If you trade other than stocks (I trade futures) you can start with a few thousand dollars. If you trade stocks you will need at least 25k to comply with the pattern day trading rule.

    How can i learn more?
    Lets lump everyone into the I am collecting information phase. You can search the internet for “day trading forums”. I won’t reccomend a specific one because I do not want to be accused of promoting one over the other. On these forums look, read ask questions. In short gather information. Here are some good rules to follow on the forums.

    Avoid the guy that starts off with “I had a friend that knew somebody that day traded and ???” This guy has no idea what he is talking about and will waste your time. Anyone giving you advice must at least claim to be a successful trader. If they are lying, you will figure it out from talking to him. We have all been around long enough to recognize a liar.

    Beware of people trying to sell you stuff. They are probably more interested in selling you something then giving advice. Consider thier motivation.

    Avoid the black helicopter conspiracy theory guys. These guys will tell you that you can’t make any money in the markets because you don’t have the secret information that (insert some secret society) does. These people are as crazy as they sound.

    Avoid anyone who wants to sell you secret system or a magical computer program that will make you successful. There are no new secrets. These tecniques have been used since the japenese developed them to track the price of rice.

    How much money can you make and don’t most traders fail?
    Most untrained traders fail. Most traders that have recieved proper training become very wealthy. When yoi talk to someone who claims to have tried day trading but lost money ask them about thier training.

    Do you teach?
    No I do not teach anymore do to time constraints. I do not believe my mentor teaches anymore either. There are people out there that will mentor traders but before approaching them you should figure out if this right for you.

    I hope I have covered most questions in this post. If not fell free to PM me and I will do what i can to get you answer. The one thing I am not in a position to do is reccomend people or services for training so please dont ask me to do that. Otherwise PM away.

Leave A Reply

Pair a profile with your post!

Create a Free Account

Or,


Log In Here