Why do so many people say you will lose all your money day trading??

Question

so many people say that if you day trade, more than likely you will lose all your money....but i don't get how they come up with that? what makes day trading so different than "investing in stocks"....buying a stock and holding on to it. if you could buy a stock and sell it for a profit, does it matter if you can do it in a day, versus a week or month??

Answer 1

There's much more NOISE in price movements in day-trading. Prices don't always reflect the true value of the company. Investing over an extended period of time puts the real value of the company to the test. One isn't necessarily better than the other, but day-trading requires a different kind of skill-set which makes it much harder to succeed than investing.  

Answer 2

There are several reasons:

1.  As with most topics in finance, most people haven't got a clue what day trading is, what it means, and what makes an effective day or swing trader, or what makes a longer term investor.

2.  Many of the uninformed referenced above think there is something inherently "wrong" with a short term profit.  This stems from two things:

     A.  Ignorance

     B.  A holdover from former days of extreme brokerage fees that

          essentially dictated a long term "buy and hold" strategy.

3.  Those who don't do their homework have the potential to get crushed.  So, the solution is clear.  Do exhaustive research, consult successful people who do know what they're talking about, and take advantage of the training available.  If you develop a solid strategy paper-trading before engaging actual funds, you can certainly do well, and some do quite well.  

It makes no sense at all - if intelligent people think it through - how long you hold something.  What is most important is buying intelligently when stocks are unfairly compressed, oversold, and higher quality than perceived by the market.  That requires work. The more you do it, the more you'll continually refine your approach to leave as little money on the table as possible and maximize your profits and not be greedy.  

The same would be true of livestock, real estate, automobiles, etc.  If someone is willing to pay you more than you paid for something, and that payment exceeds your income goals when you purchased it - why would you pass up that offer in favor of waiting until later and potentially losing the opportunity?  

Answer 3

because, according to a number of academic studies, more than 99% of day-traders will, in the long-run, lose money.  more than 80% see their seed capital cut in half or worse within the first couple of months.

day trading often involves more risk than simple strategies like buy-and-hold.  this is because it is almost a necessity to use margin when day-trading, due to the fact that you will be using un-settled funds for nearly all of your trades.  this eats into your capital, and effectively creates a hurdle rate as high as 8%.

Answer 4

Because you are constrained by the time scale. If you are investing medium or long term you can weather the storm when the share price is down. Day trading is virtually gambling. It can be successful but you need to have more information, luck and skill.  

Answer 5

cause when u sell short you lose money and thats what day trading is... you have to be reallly good to do it

Answer 6

Because choosing stocks for the long-term based on fundamentals is much easier than predicting day to day moves. Day to day moves are very unpredictable and you really have to know your stuff to be successful at it.

Pull up a chart of the Dow Jones Industrial average over 5+ years and see what I mean. Over 5 years, you make money. But zoom into any short time frame (days or weeks) and the volatility makes it very risky.

Answer 7

The primary reason so many people loose money trading is that they never took the time to learn what to do, how to do it, and when to do it.

There are four major plans than every one need to trade, or even invest.

1- A written sound trading/investment plan with rules that will not only help you but more importantly protect you, mostly from yourself.

2 - Sufficient trading/investment capital.  Use your own money, there’s no need to go into debt so that you trade/invest.

3 - A written money management program in place.

4 – A full and complete understanding of the rules & regulations of the industry.

If people had their game plan in place before they every entered an order, they would not loose money and if the did, their losses would be controlled and in the long term would always end up profitable,