So let's talk about it.
Should you be day trading?
Because these days day trading
is super popular and there
are several advantages to day
trading, but there are also
some challenges.
And in this video, I'll show you
the pros and cons of day trading
so that you know exactly
whether you should consider day
trading or not.
So let's talk about the pros
of day trading. Well, first of all,
what does it mean to day trade?
Day trading means that you're
opening and closing a position
within a day, often
within minutes.
I mean, that's what most day traders
do, when I'm day trading I'm
typically holding a position
anywhere between 3 and
20 minutes.
So that is very typical
for day traders.
So what are the pros
of day trading?
Well, first of all, it is fast
and you will see
instant results.
And what do I mean by instant
results? Well, within a few minutes
you already know whether you're
right or wrong, because either the
trade moves in your direction and
you'll be able to make a profit, or
it moves against you.
So anyhow, at the end of the day,
after you have done some day trades
you already know how well you're
doing, right? I mean, you don't
have, and this brings me to number
two, you don't have an overnight
risk. Whatever you realize
by the end of the day is in your
account. So therefore, the results
are more instant.
Consider swing trading.
You see the way how I swing trade
I'm in a position typically between
5 and 20 days.
So this is where you need to give
the trade some time to develop
and so this is where
you will see some ups and downs
start the day and you don't see
these instant results that you see
with day trading.
Also with the overnight risk, I
mean, as you know, right now markets
are moving crazy and some people
love it not to have overnight
risk because you don't know where
the markets will open this morning.
Let's take a look at this right now.
So here today, as you can see,
the markets were opening higher.
And if you look at stocks
like Kodak, for example,
that suddenly opened way
higher overnight or another one
like ADT, right?
Which opens with a huge gap.
Now, gap can work in your
favor as well as against you.
Let me give you an example of one
that might be working against you,
Intel. So this is Intel here, and
as you can see, was nicely trading
between $60 and $62 and
then suddenly plummeted down
to $50.
So there is some overnight risk, and
with day trading you don't
have this overnight risk.
Well, number three, definitely
it is an adrenaline
kick, right? I mean, you know that
you can make hundreds of dollars,
maybe even thousands of dollars,
depending on your account size in a
matter of minutes.
So it can be very
addictive here.
It definitely gives you the
adrenaline kick and this is why
people love day trading.
Number four, the other thing
with day trading, there is no
overthinking and here's why.
When day trading, you have to make
a decision in a split second.
I mean, the markets don't pause for
you. The markets are moving, so the
markets are moving quickly, and
when you see an opportunity you need
to jump on it right away.
And this is why some people love
day trading, because this
way they don't have the tendency to
overthink. Because I don't know
about you, some people suffer
from analysis paralysis.
Now, with day trading, you cannot
do this. With day trading there's no
analysis paralysis because
if you snooze, you lose.
Now, originally I thought that I
have five pros, but
honestly, I ran out of pros.
So these are the the four major
pros based on my experience
that I see. And you see at the
beginning of my trading career,
I used to day trade a lot.
These days as I have been trading
way more many, many years
and as I'm getting older, I'm
50 years old right now, I
prefer swing trading.
So but let's talk about day
trading and also the cons of
day trading, because there are some
disadvantages.
Now, first of all, when day trading,
it might require
$25,000 to day trade.
Now, why do I say it might require
on it? First of all, this is only
true when you're trading stocks and
options, and it is only true
when you're trading in a margin
account. If you're trading in a cash
account, the pattern day trading
rule does not apply.
By the way, I will do another video
on the pattern day trading rule
because it's a it's a very
misunderstood rule here.
Anyhow thus far is
this helpful? Because if it is
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to you and helpful.
Okay.
So and again, $25,000
for you it might not be a problem,
other traders are struggling
with coming up with $25,000.
So what is another con?
Another con is that you can use
a smaller stop, but
with a smaller stop it also means
that you will have smaller profits.
Now, let me explain this to you,
because this is where I want to
spend a minute and show you exactly
what it means.
Some people don't understand this
relation. So I want to go back here
to the charts.
I want to go to Microsoft.
So Microsoft today jumped,
but this is a daily chart of
Microsoft.
Now, at the very bottom here, you
see an indicator that is called the
average daily range.
What does it mean?
The average daily range means how
much does a stock move on average
from the high of the day to the
low of the day.
And right now, the average daily
range in Microsoft is
$4.60.
So this means that when you're
swing trading, your stop loss,
of course, needs to be at least
$4.60. Otherwise, you will get
stopped out.
Now, here's a rule of thumb that
I personally like to use.
If I use this
as a stop loss, I want to see
twice as much as a profit
target. So here in this case, I'm
looking for two times the
stop loss as my profit target.
So this means my profit target
is $9.20.
Now, if you're trading 100 shares,
only a 100 shares of Microsoft, then
you know, this is per one share, it
would be $460 dollars as
a stop loss on 100 shares
and $920 as a profit
target. Now, let's take
a look at a five minute chart.
This is what day traders do.
They're looking at a five minute
chart. Here you see a five minute
chart of today.
And you see that if you're trading
on a five minute chart and let's
say that you're trading the breakout
right here above, let's say
$214.50. I mean, you get the idea.
Where would you place your stop
loss? I mean, you can place your
stop loss at probably
just right here.
So a rather small stop
loss of maybe around
$213.
So this means your stop loss is only
$1.50. But this is where you get the
idea, if you're applying a stop loss
of only a $1.50, you could
only make around $3.
Because as you can see, we haven't
even scratched, well barely
scratched
$217 here.
So it is very, very important
that you understand, the
smaller the timeframe,
the smaller your stop loss
and therefore also the smaller your
profit targets.
So keep this in mind here.
OK. Now, what is another con
of day trading?
Well, it can be very
addictive.
Because day trading for some people,
it's almost like a slot machine,
right? So I've seen people wiping
out their account because they got
addicted to day trading.
When you're swing trading, like I
prefer doing these days, you
only place a trade a day and after
this, you're done and you can
relax.
Another con is that you have no
time to think.
And again, this can be
a pro because you can avoid
overthinking but it also
leads to impulsive trading.
And this is what I see many traders
are doing, especially day traders,
that they are trading impulsively.
Because they see that the market
starts moving and now they are
scared that the market might run
away. And so they quickly buy
and they often buy at the high.
So no time to think can
be a pro, but it can also be a
con because this way
this leads to impulsive
trading, and usually impulsive
trading never worked
for me.
OK, anyhow, so let's talk about
a fifth con that I see here,
and this is the risk of overtrading
or also revenge trading.
So what do I mean by this?
Especially when a day trader starts
in the morning and has a few losing
trades here, the trader might say,
"Oh, if I just trade more, I
will make back the money that I
lost." And I don't know about
you, what I experienced when I still
did this, when I was overtrading
or revenge trading, usually when
I had a bad day, it just got
worse.
And this is where I see many traders
wiping out their account,
day traders by just
overtrading, revenge trading
and yeah, actually doing
a lot of impulsive trading here,
also doubling down.
So these are
the main pros and cons that
based on my experience, my own
trading that I experience.
So let me give you a quick summary
here. But let me ask you, has this
been helpful thus far?
Because if it is, do me a favor and
click on like really quick.
But let's talk about a summary,
because I said, when is day
trading for you?
Well, I actually want to say day
trading is not
for you if you like to
analyze your trades,
right? And think about it before
you enter.
So if you want to just take some
time and say, "Alright, so let me
take a look at the trade and let me
think about where will I placed my
profit target and my stop loss."
Then day trading is not for
you because the markets don't
pause for you, the markets just
keep moving. And especially these
days, the markets can be moving
fast. So day trading is also
not for you if
you might have an addiction problem.
And hey, you know yourself best,
right? I mean, do you think that you
could get addicted to day trading?
Most people can and
no addiction is a good addiction,
right? I mean, you know this.
In general, it's better when you're
not addicted to anything.
Now, lastly, day trading
is not for you if you
easily get stressed
or overwhelmed.
Again, you know yourself better.
So are you easily overwhelmed?
Because if so, then day trading
might not be for you because again,
it's super fast.
It's like driving on the
German highway with 180
miles per hour.
You get the idea.
So if you're an experienced driver,
it is fun.
But if you easily get overwhelmed,
then day trading might not be
for you.
Let me just ask you,
has this been helpful at all?
Because if so, do
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