The 7 Factors That Hold People Back From Day Trading

In This Article

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.

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?

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.