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Day trading is an acquired skill. It’s quite demanding, and it is engrossing too.
People who do it daily often enjoy a fast-paced, high-stress life that makes them feel alive. But it’s not a great fit for everyone.
To help you decide whether day trading is right for you, here are four things to consider.
Can You Handle the Fast-paced Work?
Day trading involves researching quickly, making fast trading decisions, and executing the trade quickly.
Price movements happen shortly after the trade or before the close of the market, so a buy order early in the day often leads inevitably to a sell order before the day is done.
The trading aspect and quick movement are appealing to some but daunting to others. If you’re someone who dislikes pushing paper around the desk – even if it’s virtual paper – then this level of daily activity will hold a strong appeal.
Read this linked article to learn how to decide if its right for you. It will open your eyes to day trading and make it clearer if it’ll be a good fit for you.
Do You Have the Necessary Capital?
With day trading, the starting point is the capital that you can invest and put towards it.
Therefore, even if you make 20% in a year from active trades, after fees, the dollar profit is reflected in the value of the capital. Therefore, if you only have $1,000 to invest, the profits might only be $200.
Because of this, it’s essential to have a good stake that you can put into an account before you actively start day trading. You can try to build up the stake by starting small and reinvesting profits, but it will likely slow your progress.
Of course, there’s sometimes the option to trade on margin.
This means asking for a line of credit with the broker to borrow funds and thereby increase your purchase size. However, this leads to extra costs, interest charges, and short-term volatility, causing a whipsaw effect on your finances.
It also adds greater risk too.
How Do You Handle Risk? Does It Stress You Out?
The one-day movements can be significant when there’s news that will move either the market or a particular stock positively or negatively.
Depending on how much of your net worth is invested in a day trading account, your stress levels will likely increase.
And this stress will continue after the business day is over too. You don’t leave the pressure at the office when you close the door and walk away.
Do You Have Enough Spare Time for Day Trading?
Day trading requires a time commitment that’s unlike other types of trading. It’s necessary to know markets, economies, news cycles, and keep up with current events too.
Also, understanding what it all means and how it is material to possible short-term investments is another layer to it. Significant time investment is required both to get up to speed and to actively trade.
Are you tied up with a full-time or part-time job and won’t be able to getaway?
If you don’t have time to think about trades and can only sneak off on a break to transact a buy or sell order, that won’t be enough. Additional time is needed for thinking, reviewing, and deciding where to act.
Also, the markets need to be actively monitored to know when to buy, abandon a trade for a loss, or sell for a profit.
Day trading is a great way to increase your net worth. It’s also a fast-paced, time-intensive activity that requires a serious commitment to get the most out of it. Good luck!
Krystle Cook – the creator of Home Jobs by MOM – put her psychology degree on a shelf and dived into a pile of diapers and dishes instead. She is a wife and mother to two rambunctious boys, sweating it out in her Texas hometown. She loves cooking, DIY home projects, and family fun activities.
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