This is blog on how day trading ruined peoples life.
It is a short report that people must read. I read day trading disaster stories myself.
In turn I doubly assure myself that investing is far better than day trading.
We all know that money cannot be made in a day. It takes time, strategy and implementation to make money.
There is nothing like quick money in this world.
But day trading publicises just the opposite.
They make us believe that quick money is within reach. But this is all false.
Making easy money by day trading is as inconsistent as winning money in a lottery or gambling.
In fact day trading resembles gambling more than anything else.
When gambler with a gifted skill, gambles with a strategy and expertise, he makes money.
Day trading is just like that, to make money here you must be extra skillful and also fully trained.
This is a reason why, common men only lose money in gambling and day trading.
On face of it, gambling and day trading looks too simple. Buying low and selling high is a concept that is so easy to grasp.
But actually it takes great skills to execute day trading profitably.
What I have realized about day trading is this; an expert of stock market, who has professional experience of 15/20 years in market can do day trading.
But a common man who has has no knowledge of stock market shall avoid day trading.
I have read several stories about how day trading ruined peoples life. My conclusions have been the same.
Unskilled and non-trained people must avoid day trading.
Day trading is not for non-experts of stock market.
But still there are people who are practicing day trading profitably.
I have read about few successful day traders. I was surprised to see how knowledgeable they are about stock market.
All of them were undoubtedly gurus of stock market. They were expert is judging and forecasting stock market behaviors.
They can do this with so much accuracy that making money from day trading is easy for them.
But how many of us can forecast stock market? I will say not even a tiny minority can boast of forecasting stock market.
One way how day trading has ruined peoples life is by taking advantage of people’s ‘lack of knowledge about stock market.
If you cannot foresee stock markets behaviors its better to stay away from trading.
Forecasting stock market is like acting god.
Market is so volatile and interdependent on other factors that for a common man forecasting market is nearly impossible.
Yes, some people can get lucky sometimes, but that does not make them experts.
Lets see how day trading works. It is better to know this. Only after knowing about day trading, this realization comes that why it is so risky.
Day trading has ruined peoples life simply because there is too much risk associated with it.
Let’s look beyond the hype and lust of making quick money and see how day trading works.
Day Trading Vs Investing
Most people have ruined their life in day trading by starting to trade without knowing its basics.
If our idea is to only to buy low and sell high, we are heading for a disaster.
We must first understand that day trading is not investing.
Day trading and investing are two separate ways of making money.
An investor buys stocks with intention of holding it for long term. A day trader buys stocks with intention of selling it the same day.
Investors analyzes business fundamentals and then buy its stocks. A day trader just look at stock price and cares least about its fundamentals.
This superficial approach of day trading makes it so risky.
We all know that stock price is very volatile. It is the same for an investor and day trader.
Investors are ready to wait for long term to neutralise price volatility. In long term, fundamentally strong business will show definitive growth trend.
So investors first checks stocks for its fundamentals, then buy its stocks. They buy stocks of only fundamentally strong stocks.
These stock they hold for very long time.
Long term growth of such stocks easily beat inflation as the business itself is growing very fast.
For a day trader the approach is different. Day traders do not want to neutralize the volatility to make money.
Instead they want their stocks to be as volatile as possible.
The more is the stock volatility the higher are their chance to make money.
This high volatility inherently associated with day trading makes it so risky.
This associated volatility with day trading has ruined peoples life.
Day traders wants stocks to be volatile.
Then this same volatility ruins their life as they cannot correctly predict if price will go up or down.
Highly volatility stocks is the main culprit of all day trading disasters.
How Day Trading Ruined Peoples Life by Leverage Trading?
Another way how day trading ruined peoples life is by leverage trading.
In their lust for more profits, day traders borrows money and then trade. The borrowed money is used to increase leverage.
Suppose a day trader bought 1,500 stocks of Tata Steel at Rs 290 each. Invested capital by traded is Rs 4,35,000.
This capital traders borrows and then trade.
He decided to sell his holdings later when stock price rose to Rs 292.
In this case his profit would be Rs2x 1,500 = Rs 3,000.
On this profit the day trader will pay commission to broker @5% max. It means his profit will still be about Rs 2,850.
Day trading also attracts capital gain tax @ 15%, so net of profit will be close to Rs 2,400.
Profit percentage for the trader in this trade is only 0.55%.
First the stocks are volatility. Then day traders make it even worse by borrowing money and increasing risk further.And why he doing this, just for a profit margin of 0.55%.
There is no doubt why common men have ruined their life because of day trading.
In greed for easy money people fall in the trap of day-trading.
As this was nor the end, day trader makes their life even more risky by increasing their trading volumes.
In the above example we saw a day trader making Rs 2,400 of net profit with margin of just 0.55%.
Means, he was investing Rs 4,35,000 and in return was making just 0.55% profit.
This profit is small, so day traders are forced to do multiple trading in a day.
In one trade itself there was so much risk. They further multiple their risk by doing 5-8 such tradings in a day.
Only god can save day traders.
What had happens if the day trader makes a loss?
Not only he would pay back the borrowed money from his pocket but also the commission charges.
How Day Trading Ruined Peoples Life by Short Selling?
Day traders has two strategies of making money. They follow either leverage method or short selling strategy.
We have already seen what how day traders use leverage for making money.
For sure leverage method of trading is even riskier.
In short selling traders buys those stocks whose price is expected to fall in a day.
These are the steps how day trading is practiced by short selling by a trader.
|Step 1||Place Sell Order using trading platform (suppose 1000 shares of Tata Steel @ Rs 292)||–|
|Step 2||Contacts the broker. Informs them that he does not have shares of Tata Steel. But would like to borrow some.||–|
|Step 3||Day Trader waits till the brokerage firm lends 1,000 shares of Tata Steel in account of day trader||–|
|Step 4||Day Trader immediately sells the 1,000 shares of Tata Steel at Rs 292 (current market price each)||Cash In: Rs 2,92,000|
|Step 5||Day Trader waits till the market price of Tata Steel falls to say Rs 290. At this price the day trader buys 1000 shares of Tata Steel||Cash Out: Rs 2,90,000|
|Step 6||He returns back 1,000 shares back to the brokerage first that he borrowed.|
|Ste 7||Profit of Day Trader is the Cash-in minus Cash-out||Profit: Rs 2,000|
If a day trader performs 5 such profitable trades in a day, his cumulative profit will be Rs 10,000 per day.
But on paper this short-selling (margin trading) may look inviting. But in reality its very scary.
What happens if the price, instead of falling continues to rise?
This is what happens most of the time. When traders expect price to fall they rise & vice versa.
Let it be leverage or short selling trading strategy, the risk of loss when one puts money to work like this is too high.
The skill required to use leverage and short selling is very specific.
We common people does not have the required skill of executing trades profitably using leverage or short selling.
I hope now my readers have realised the risk associated with day trading and know how day trading ruined peoples life.