Strategy #1: Day Trading
Active Trading is exactly what it sounds like.
You actively buy and sell securities for short-term gains and profits. That means quick time cycles and use of short-term stock charts.
That’s because most day traders believe that’s where all the profits are made.
When you think about it, Active Trading is essentially the “entrepreneurship of investing.” You take on the most risk to ensure maximum reward.
With that in mind, there are four types of active trading strategies you’ll learn in this series. They are:
- Day Trading
- Position Trading
- Scalping
- Swing Trading
Day Trading
This is undoubtedly the most common type of active trading. And it will most likely be your introduction to it.
Consider it the “greatest hits” of active trading.
In fact, day trading is active trading at its essence, because you simply buy and sell securities within the same day.
That means no matter what, positions are closed by the time the market closes.
While that presents risk, it won’t phase corporations or the market movers who have a lot of capital.
These are the guys that influence price and volume.
And we always follow the people who move price and volume and ride their coattails to profits! However, day trading has a way of blindsiding the unprepared.
The Downsides
There’s no sugarcoating here: Day trading is high risk.
You essentially go head to head against other traders in a gladiator ring.
But instead of spilling blood, you’re spilling cash.
The battle never ends, and it’s most likely rigged against you. Here’s a list of some of the downsides:
- You will suffer serious financial losses
- There is no measured predictability with passive securities
- It will require lots of capital and a full-time commitment
- You will still need to be patient even if you chase short-term gains
- There will be reading of charts — lots of charts
- 80% of all day traders quit within the first two years
If you are not prepared for the reality of this, then you are not ready to day trade.
Why Day Trade?
Despite the downsides, day trading can be very profitable and lucrative for those that get it right. It still presents opportunities for people to generate wealth and live as they wish.
For example, according to Broker Notes, Forex is becoming the most liquid market in the world. It is currently 12 times larger than the futures market and 27 times larger than the equities or stock market.
The forex market is currently worth $1,934,500,000,000 (that’s $1.94 quadrillion).
It’s no wonder people want to carve out a piece of that for themselves despite the risks of day trading.
If you are serious about it, you will need:
- A well planned strategy
- Some luck (real-time events outside of your control can affect you)
- Recurring capital
- Daily commitment to learning
- Practice (with a sim account)
- Reliable trading resources, software and equipment
Go All the Way
Day Trading is not for the faint of the heart and carries incredible risk. Once you jump in, it’s an incredible commitment.
It’s almost like having another child. So you need to find balance in all aspects of your life before you take this on.
Day trading isn’t a meal ticket that automatically brings you riches. It requires you to put in the work and learn from other traders who’ve already succeeded.
You must be fully aware of the risks because there’s only two outcomes. You’re either going to fail… or succeed.
Don’t swallow that pill unless you’re ready to go all the way.