The lure of day trading

I often get emails from subscribers or even on occasion members to LS Trader who say something along the lines of “I’m making money trading with this longer-term position trading, but I really don’t have the patience for it and want to trade shorter-term”.

I got such an email today. My answer is always the same, if day trading or short-term trading worked, we’d trade that way. The fact of the matter is that short-term trading and day trading simply do not work and there are many reasons why that is the case. Here are just a few of the big ones:

  • Short-term traders have to be exceptionally good to make profits that are sufficient to cover the increased transaction costs, or spread in terms of spread betting
  • By definition, day trades are closed before the end of the trading day in which they are open, so the profit from a trade is limited to the daily range. Even if you caught the exact bottom of  a daily bar and sold at the exact top, in most cases that won’t be a huge move
  • Frequent trading is very stressful and leads to trader errors and emotions getting in the way, which will often lead to a trader ignoring his trading rules, something that is fatal to trading profitably.
  • Slippage can also be an added transaction cost. Although most day traders will stick to the more liquid markets where spreads are narrow, such as FX markets, and execution is normally good, slippage can and does still occur. This can make the losses incurred larger than one had accounted for.

There are more reasons than this but these are a few of the major ones. What it really boils down to is one simple question. Are you trading for excitement or to make money?

It’s quite amazing how few traders actually stop to ask themselves the reasons why they trade. If you don’t know why you are trading, how will you be able to develop the optimal approach for you to achieve your objectives? How will you know when you are being successful and achieving your targets if you don’t know what they are? And if you don’t answer these questions, how will you know when to change or refine your approach?

Personally I’m not interested in excitement when I trade, I’m only interested in being profitable. I don’t care how boring trading in the right way can be as long as it is profitable.

So, what about you? Have you asked and answered these questions for yourself? Is making money as a trader your real goal or are you just looking for excitement? If you are, the markets will provide this excitement for you, but it will be at a cost of not only your profits, but probably the majority of your trading account as well before you realise your error. Before you place your next trade, think about and answer these questions.

Good trading

Phil Seaton

P.S. If you are interested in trading profitably and learning the right way to trade, take a 30 day free trial of LS Trader by clicking here


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