Let’s get straight to the point: in practice, day trading doesn’t work. It is presented as a great opportunity to make a lot of money in stock exchange trades – but the truth is that it is not such a profitable trade.
Read this post to better understand what this operation is and why it poses great risks to your investment portfolio .
Contents [ hide ]
- 1What is day trading?
- 2What are the main day trade risks?
- 1Liquidity
- 2Market
- 3Systemic
- 4Conflict of interests
- 3Understand at once why day trading doesn’t work
- 1Believing that it is possible to predict the future using the past
- 2Ignore the high risks of the operation
- 3Thinking you have more knowledge than the market
- 4Forgetting that day trading is actually a gamble
- 4How to invest more reliably?
What is day trading?
The day trade is a form of investment in the stock market, with return promise in the very short term. Through this approach, the purchase and sale of shares of the same company are carried out in a single day.
Therefore, one of the main differentials of the modality is that the operations can only last a few minutes. At this point, it differs from swing trade , which has a space of up to two days between the purchase and sale of securities.
The modality draws the attention of investors for the chance of obtaining a quick return and for making room for leverage, which is the use of a limit released by the broker, in an exclusive credit that is similar to an overdraft.
In theory, there are chances of earning good money in a short period. However, the reality is a little different.
What are the main day trade risks?
Day trading brings many risks and requires a lot of cold blood from investors. It is heavily influenced by national and global scenarios, which prevents a safe forecast or preparation for fluctuations. This means that, despite the gain advantages, there are a number of threats present in the modality, listed below.
Liquidity
Although the day trade is based on the quick purchase and sale of shares, the trader may not be able to sell the shares and, therefore, not obtain the expected liquidity in the operation.
Marketplace
The risk market is the possibility of oscillation of the paper purchased, resulting in a different drive expected by the trader. In other words, the investor bets that certain stocks will go up, but they end up falling on the stock market.
systemic
Systemic risk happens when a crisis affects all assets in the market. A close example is the COVID-19 pandemic, which caused a drop in most investments and scared the economy around the world.
Although the day trade brings the necessary speed for operations to follow this volatility, the losses in this case are incalculable, since it is something totally unexpected, which escapes the curve of normality.
Conflict of interests
On brokerage websites, it is possible to find content that, despite warning about the risks of day trading, also highlight the possibilities of gain.
However, there are interests involved in this. In addition to selling courses on the subject, brokers earn money from these operations by indicating assets that may not be the best options for investors.
Therefore, for these companies, it is convenient that more people want to trade with day trade – even if, in the long term, the operation is not positive for those who invest.
Understand at once why day trading doesn’t work
When dealing with this type of financial movement, the investor deals not only with external issues, but also mindsets that can contribute to the rapid burn of assets.
We’ve listed the most common problems here, so you can better understand why day trading can be a real trap.
Believing that it is possible to predict the future using the past
Data analysis can rely on past events to predict the future. However, this dynamic is not applicable for day trading.
Several factors impact operations and make a simple change cause a big loss.
Ignore the high risks of the operation
Many people get excited to start the day trade when they see successful cases . But don’t get carried away by appearances: in general, people who bet their capital in this modality also suffer considerable losses of money.
A study by the Getúlio Vargas Foundation (FGV) showed that 92% of individual traders give up trading before one year. Other than that, of the 8% that remained active beyond that period, 91% had losses.
Thinking you have more knowledge than the market
One of the arguments used to sell day trading courses is that, with more knowledge, it is possible to make better trades.
The truth is, this learning curve doesn’t exist. You can even learn more about the subject and improve your buying and selling choices – however, some factors still remain unclear even for the professional trader .
Forget that day trading is actually a gamble
In day trading, it is possible to have contact with some techniques and sequences that can increase the possibility of gains. However, the investor does not have a macro view of the situation, so he basically bets on a move, without being sure about the outcome.
In practice, it’s like a game of chance, including the effects on the brain. When day trading is successful, the body releases a large amount of dopamine (pleasure and reward hormone). The tendency is that the trader can no longer handle it rationally, and may even become addicted to carrying out trades.
How to invest more reliably?
The best way to ensure the growth of your wealth is to have specialists who really know what they are doing, choosing investments that have to do with your goals, but who also consider the reality of the market.
So it is better to opt for safe investments and not get carried away by the promise of quick gains.
With a portfolio designed in a strategic way, the chances of multiplying your equity increase. You can also sleep peacefully and preserve your health, without exposing yourself to all the stress and seesaw of emotions that day trading brings.
Is it clear why day trading doesn’t work? Don’t be seduced by promises of astronomical gains in a short time. When it comes to money, it’s best to keep your feet on the ground and think carefully about each step.
If you want to make your capital work smart for you, download the Magnetis app and find out how we can point you in the right direction, diversifying your portfolio based on strong expertise, unique diversification and full support of innovative technology.
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