Day trade sounds fun, right? You see people making $200 on YouTube all the time. Well, I am a full-time trader, though. I must be honest: day trading is probably not for you.
Here are 3 reasons why you shouldn’t day trade:
You’re Struggling Financially
Financial hardship is the first and probably the most important reason not to day trade. I firmly believe that if you can’t pay your bills, don’t have a job that provides a steady income, or are drowning in debt, you shouldn’t day trade.
I know this may be an unpopular opinion, and I’m sure I will get some flak for it as we live in a world that is so rife with get-rich-quick stories on social media that you see people turning a small amount of YOLO into millions in a single business. An example is the wallet that Shib bought last year, which turned $8,000 into billions of dollars in one year.
I completely understand that hearing these stories is very inspiring, and they make you feel like you can do the same if you are in a similar situation. I can do the same if someone else can turn $100 into $1,000 or $10,000. Try to stop me.[1]
In psychology, it’s called the safety bias. Survivorship bias is the tendency for people to pick on people or strategies that have successfully passed the selection process and ignore all those that have failed. People tend to focus on those survivors, even if they survived primarily due to luck rather than existence.
This phenomenon makes us, including me when I first started trading on Day 1, have the false confidence that if I see two people out of 100 turn $1,000 into millions, I can do the same.
And it’s this false confidence and lack of media coverage makes us ignore the other 98 people out of that group of 100 who lost their entire $1,000. This is the other side of the story that I rarely hear about.
Yes, I admit, when I first started trading, I succumbed to the security bias I mentioned earlier. I could get rich quickly, but the big difference is that I had a 9-7 job. Even if I lost my entire trading account, which I did along the way, I would still not be broke financially.
I would not owe my broker, go into debt, and be unable to leave the streets.
Again, I had income from my job to pay the bills. There is a big difference here. If you have a steady income and want to start day trading with a small side account and start learning, do what you want as long as you are financially stable.
I am not here to discourage people from day trading, but I will caution against putting the last $1,000 in your bank account to day trade if you do not have a job. I think it would be perilous and destructive.
There will be people who will tell you to use your last $1,000 to “invest in yourself” and buy educational programs to learn about business, investing, cryptocurrency, Amazon FBA, stores, etc.
I am really against this. The right way to invest in yourself is to use that money wisely to pay rent and bills.
When someone asks me on Instagram or sends me an email asking to put $1,000 in their bank account and wants to do business with me, the first response is, “I’m sorry to say this, but I don’t think you’re in the business of daytime.”
I know this may sound pessimistic, but it’s tough love. I answer this question as if I were my son or daughter or my younger siblings, who exist.
W would never encourage my brother or sister to do anything risky if they struggle with their bills or don’t have a job.
I am not a poor person because I am wise. As some call me, I tell your sister, girlfriend, or business mom. Believe it or not, I received several Mother’s Day cards from my HT members on Mother’s Day. They mean that I don’t have children I know of.
I genuinely believe you can run a profitable daily business as a new trader if you focus on learning first, accept small initial losses to understand the market and pay your bills.
If you are besieged financially, you will likely respect stops, trade sentiment, strive for success and forget about risk management. All these factors can lead to losing the last $1,000 in your bank account.
If what I just described sounds like you, save your last $1,000 to pay your bills. Get a job that allows you to live a stable life. If you like day trading, maybe go into the business when you live together.
If you have a job and are doing well financially, do whatever you want. Suppose it’s all at Gamestop, AMC, or SHIBA-inu. You are you; it’s your money.
You’re Looking to Get Rich Quick
The second reason you probably shouldn’t day trade is because you want to get rich quickly. We’ve talked about this many times before. Day trading is not a get-rich-quick scheme.
Did I think I could get rich quickly after the chat room alerted 7 years ago? Yes, I’m guilty, but did we get rich in 1 month? No!
All these things, like trading texts and chat room hype or signs, will most likely lead to you blowing out your small business accounts. Sure, you can make $50 or $100 here by following someone’s buy or sell alerts, but all it takes is one time to lose $200, $500, or even $1,000.
The follow-up alerts don’t teach you anything. You don’t know how to properly plan your trades, including entry, exit, and STOP. You don’t learn to manage risk, so you control your losses even if a trade goes against you.
This is why many new entrepreneurs find PNL a roller coaster ride in their first year. Because they focus only on the dream of quick and easy money instead of planning for their risky rewards, we call it risk-reward trading instead of risk-reward trading.
As I mentioned in reason #1, day trading requires paying to learn the market. We all start losing money as a business, but you can decide how much. Only those who start focusing on planning their business and trading their plans before they push the buttons can beat this game.
This business is a trial by fire, so if you want to get rich tomorrow and make millions from scratch, day trading is not for you.
You’re Incapable of Critical Thinking or Taking Responsibility
The third reason you shouldn’t day trade is that you cannot think and take responsibility for your actions. Day trading is not like a typical 9-5 job where you work for your boss, and if you do well or are lazy, you are guaranteed a paycheck.
Day trading is where you are 100% responsible for your actions and profit or loss. You can pretend to “work” and still lose money. However, you can also do the right thing and profit.
Whether you fail or succeed, you are responsible for the balance of your trading account at the end of the day. Trading requires you to be able to make decisions about your account, your business model, and your risk tolerance.[3]
One trader may see a good opportunity to buy a stock on the track, while another may see a short position near resistance. There is no right or wrong answer. All that remains is the business administration of your settings. Whether you hit the sell button or sell or not, trade is entirely up to you.
Taking Responsibility
As traders, we need to review and analyze every success or failure. Where can we work next time? How can we improve our strategies or manage risks next time? These are all thoughts and reflections you make to yourself after each trading day.
Sure, it would be easy always to blame pumps, alerts, and market stealers when you lose money, but what happens when you make money? Do you attribute some of these benefits to the same bombers or the same characteristics?
I don’t have the answers to these questions, but whether I succeed or fail, I will take full responsibility for my trading actions and brokerage account. If I fail, it’s no one else’s fault. If I win, the profit is mine.
Until the CRA walks through the door.
You don’t have to be clever or have an MBA in economics or business economics. Still, it would help if you had critical thinking skills and maturity to take responsibility for your decisions. Otherwise, business is not for you.
Conclusion
Remember, kids, day trading is a risky business. If you are struggling financially, think you can get rich quickly, or cannot take responsibility for your actions, then day trading is not for you.
Again, I am not trying to talk you out of it. I am honest, and I am not feeding you Kool-Aid. This is tough love. However, if none of the reasons we just discussed apply to you, feel free to day trade.