- Day trading profits are too good to be true
- Day trading is emotionally draining and stressful
- Charts and technical indicators tell you about the past but can’t predict the future
- Day trading requires you to be glued to the screen
- Day trading is nearer to gambling than investing
My day trading experience
In 2021, I succumbed to the temptation of day trading. I intended to make some big bucks in short order and day trading seemed like easy money. After all, I had studied the works of successful day traders on YouTube, such as Warrior Trading’s Ross Cameron and ClayTrader, and concluded I just needed to implement a similar strategy.
I don’t want to give the impression I watched a couple videos on YouTube then hopped in. No, I watched hours and hours of videos, researched technical analysis, read books, and established written rules to prepare myself. I studied for months and spent a few weeks paper trading before diving in with real money.
I researched trading platforms, learned how to trade on margin, identified how to find stocks to trade, and more. I studied price action, chart patterns, technical indicators (VWAP, RSI, MACD, EMAs, volume profiles, etc…), learned how to read the tape, and experimented with numerous strategies. I was all-in.
My goal was to start small, with a target profit of $25 per day. Once comfortable with the strategy, all I had to do was increase my position size to make $250 per day. Rinse and repeat until I was up to $500, then $1,000 per day.
I gave day trading the ole college try for about 3 months, then quit. In practice, I never consistently achieved the $25 per day goal and over the course of 3 months ended up losing a few hundred bucks. Meanwhile the S&P 500 continued making new highs. Unfortunately, the only thing I compounded was stress, frustration, and discouragement.
Here are 5 key takeaways from my day trading experience and why I suggest you save yourself the headache (and cash) and stick with long-term, buy-and-hold investing.
Day trading profits are too good to be true
I don’t deny there are likely a few millionaire day traders out there, but it’s surely an exclusive club. Day trading takes a specific type of individual with a specific mental mindset. In my opinion, Ross Cameron is a good example of a successful day trader. He’s made millions day trading, yet makes it look so easy.
In reality, it’s extremely difficult to be consistently profitable day trading. There are numerous articles and studies online indicating that some 90% of day traders fail to turn a profit. Those are not favorable odds, and I’m included in those numbers.
The truth is, most “successful” day traders you watch on YouTube are likely making a lot more money from their videos than they are from day trading. Don’t be lured in or enticed by their P&L statements; there’s a good chance many are fabricated anyway.
As the saying goes, if it sounds too good to be true, it likely is.
Day trading is emotionally draining and stressful
As a kid, did you ever go down a steep, gravel hill on your bike? Or perhaps a paved hill on a skateboard or rollerblades? Do you recall that out of control feeling? Emotionally, that’s what it’s like to be a day trader. You know you’re headed to the bottom of the hill. You just don’t know if you’re going to get there safely and in one piece.
Emotionally, I was all over the place and hyper-sensitive to every move the market made. I’d buy a stock, see a profit on the screen and be elated. Only to see the stock turn red 30 seconds later and feel discouraged.
I’d sell my winners too early and hold my losers too long. I’d get frustrated and overstay my welcome, taking too many trades in an attempt to get back to even. Or worse yet, I’d revenge trade. All this simply compounded the issue of stress, frustration, and financial loss.
Admittedly, I wasn’t as disciplined as I should’ve been and frequently broke my own rules, but that’s the mental warfare of day trading. That’s what I mean when I say it takes a specific type of individual to be a successful trader. It’s as much mental as it is strategy and luck.
Charts and technical indicators tell you about the past but can’t predict the future
If you’ve ever dabbled in technical analysis of charts and various indicators, you’ve probably thought to yourself, “If I find the right combination of indicators, support and resistance areas, and chart patterns, I’ll be able to predict where the stock is going next.”
Newsflash, no combination of technical indicators is capable of predicting the future. I don’t care if it’s the 9-period EMA, 50-period SMA, VWAP, anchored VWAP, MACD, RSI, volume average, standard deviation channel, or some other “magic” indicator. All of these tell you where the stock price has been, not where it’s going. Can they give you a sense of where a stock is likely to go next? Maybe, but I certainly don’t put much faith in it. The odds can’t be much better than the flip of a coin.
Charts and indicators are tricky because when you look at them in retrospect, the indicators fit perfectly like pieces of a puzzle. This goes for all time periods, not just intraday. I’ve looked at many a chart and thought, “Wow! The price truly does find support at the 50-day SMA.” Or, “You know what? The price really does bounce when it hits one standard deviation below average.”
As a result, the average day trader like myself is left to believe he or she knows where the price is going next. It’s just simply not true. Chart patterns and technical indicators are like footprints on the beach. You can tell where the feet have been, but you can’t tell where they’re going.
Day trading requires you to be glued to the screen
One thing I learned from my studies of various traders is the opportune time to trade is when there’s excess liquidity in the market. This means the best time of day to trade is the first two hours of market open and the final hour before market close.
So, from 9:30am to 11:30am and 3pm to 4pm (EST), a trader is glued to the screen every day the market is open. Unless they’re lucky enough to make their weekly profit within a day or so AND discipled enough to stay away from the market after they’ve done so.
Three hours per day may not seem like much, but what if you have a full-time job? Also, three hours is time spent trading and watching/hunting various stocks, but there’s also research that goes in prior to market open to find stocks to trade.
Time spent watching the market as a day trader is not leisurely. It’s stressful and draining, and there’s a lot of self-inflicted pressure to turn a profit.
Day trading is nearer to gambling than investing
Lastly, if day trading had a second cousin, its name would be gambling.
Day trading is highly speculative. Yes, traders attempt to get in and out of trades at opportune times and when the “data” is in their favor (is there such a thing?), but it’s certainly nearer to gambling than it is investing. Of this I’m convinced.
Don’t get me wrong, there’s skill and temperament needed and I’m impressed by those who are able to do it profitably, but there’s also a lot of luck. One of the major day trading strategies I employed was hope. And hope isn’t a very profitable strategy.
