Risk Versus Reward Is Day Trading Too Much Of A Gamble

There’s no denying it. A lot of people don’t turn a profit from day trading. Still, average salaries in the industry border six figures.

Failure rates in day trading are ideal for those entering the space with an insightful approach rooted in due diligence. 

You wouldn’t be able to profit significantly in day trading if it was for everyone. The money would be spread to anybody who embarked on this supposedly guaranteed, money-making endeavor.

Instead, the playing field is less saturated because day trading requires much effort and resources. Making money in this line of work requires commitment and dedication. Thus, those who become students of the game and develop a robust, well-thought day trading strategy have room to thrive and grow their portfolio. 

A vital component of successful day trading strategies is grasping, appreciating, and mitigating risks. 

Don’t Get Deterred By Risks And Failure Rates In Day Trading.

Success rates for making a living from day trading are often cited at around 3%. These stats can be misleading because of the complexities involved in the industry. Also, other sources suggest the success rate is closer to 20%, which is actually relatively high compared to other professions. 

Many people fail right out of the gate at day trading and stop doing it. Others hold on for a bit but don’t put in the work, then give up.

The above scenarios are similar to going to the gym. A limited percentage of people stick to the weights and the cardio and waste hundreds, if not thousands, on a gym membership. Yet, any given gym is packed with plenty of buff people who put in the work. These lean-muscled folks are fewer in numbers than those of us who prefer to remain on our couches. Still, they prove the results are entirely obtainable. 

When something takes time and effort to master, the rates of success will dwindle. If you’re willing to learn about day trading strategies and nuances, you’ll be like those buff people in the gym. Except your personal nest egg will do all the flexing. 

What Does Day Trading Entail?

Understanding the risks involved in day trading means fully grasping what it entails. 

We understand many of our readers will already know much of what’s involved with day trading. 

However, many other readers will be dipping their toes into the day-trading waters for the first time. Sniper Trades wants to make the benefits of day trading accessible to whoever is passionate and dedicated enough to learn. This includes novices who need help with the basics.

Typically, targets in day trading are as follows:

  • Stocks.
  • Commodities.
  • Currencies (e.g., crypto).
  • Options.
  • Futures.

As the name “day trading” suggests, day traders enter and exit positions during the same day. 

Positions can be held for seconds, minutes, or hours before being sold in day trading. You can also amplify returns via leverage in day trading–although leverage can worsen your losses. 

Part-and-parcel of day trading is avoiding too much risk. It’s also equally vital to set profit-taking levels and stop-loss orders.

Managing Risk Should Be At The Forefront Of Day Trading Strategies.

Before we get more into day trading risk factors, we’ll explore some universal risk management best practices.

Most professional traders only risk up to 1% of their portfolio on one trade. 

Say your portfolio is worth $50,000. The “1% and under” rule means you won’t risk more than $500 on a trade. 

Successful day trading risk management stops a bad trade or two from causing significant damage.  

Also, you’ll mitigate risk by establishing profit-taking levels and setting stop-loss orders. Successfully combining these elements with the 1% rule can limit you to 1% losses while reaching 1.5% and above with your gains. 

This is easier said than done and requires discipline–but it’s entirely doable. 

Day Trading Risks And Limitations.

The world often operates in a series of checks and balances. Some might say society is a zero-sum game. We don’t necessarily agree or disagree with either statement, but we’ll point out that high rewards come with high risks.

Day trading as a profession presents significant profit potential. All the same, failure rates are substantial due to the limitations and risks involved in the job. 

Risks of day trading include emotional pressure, severe financial losses, and regulatory landmines. Limitations include lacking access to some markets and demands on your time. 

The Chances For Significant Financial Losses Are Always Present In Day Trading. 

Financial losses are frequent in day trading, usually when leverage plays a role. These losses are added to commissions and fees you owe previously expensed while entering/exiting positions. 

Following and developing effective day trading strategies will mitigate these losses. However, the threat they pose and the damage they can do should always be taken seriously.

Emotional Biases Can Hinder Day Trading Strategies.

Emotional biases are a significant factor in day trading. Often, these biases rear their ugly heads due to the pressure of day trading. 

Examples of these biases include:

  • Confirmation bias.
  • Overconfidence bias.
  • Anchoring bias.
  • Fear of missing out (FOMO).
  • Loss-aversion bias.

Day Traders Have Limited Access To Available Financial Markets.

While day trading, your access is limited to markets that allow you to easily enter and exit your positions. These financial markets must be highly liquid. 

A pitfall of this limited access is a lack of flexibility. Your playing field is smaller than that of traditional investors.

Day Trading Is A Demanding Gig.

You’ll sacrifice vast portions of your personal time when you enter the day trading profession. 

Day trading professionals must monitor potential and open trades every day. 

We’ll highlight that algorithms, price alerts, and other technological tools have lightened the day trading workload. Still, the demands on your time remain substantial. This can cut into your personal life and burn you out–adversely impacting your ability to trade effectively. 

Regulatory Requirements Can Cause Confusion.

Regulatory requirements in day trading include a minimum trading volume and stock limits. You’ll also face margin requirements if leverage is involved with certain securities.

You’ll need to cross your t’s and dot your i’s with the regulatory aspect of day trading. You don’t need to rankle the wrong feathers and leave yourself vulnerable to punitive, financially costly measures. 

Entering Day Trading And The Associated Risks.

Entering Day Trading And The Associated Risks.

Day trading is a far more demanding endeavor than if you were to simply dabble in investing. 

A hobby investor can put a few hundred bucks into owning company shares and keep them for years without much hassle. 

Alternatively, day traders are classified as anyone executing four-plus day trades within the same account within five business days. Based on this classification, day trading professionals are subject to the Financial Industry Regulatory Authority (FINRA) rules.

Frequently active margin traders must always keep $25,000 or more in their accounts. Provided your balance drops below this amount, you won’t be able to trade. 

Given the intense focus required for day trading, it can be difficult to couple with a day job. 

Also, entering the day trading market means you’ll likely have to risk your capital. 

You’ll need to find a trading platform online. Be sure to invest in quality software for research, position tracking, and trade logging. 

Short-term capital gains taxes and brokerage commissions will add up over time. You must be vigilant about those mounting fees. 

Weigh all the costs and associated risks involved in day trading to ensure you can earn a profit. 

Can Day Trading Be A Hobby?

Since you’ll always need at least $25,000 in your day trading account, it can be challenging to imagine it as a hobby.

Yet, many people have found success from day trading as a side hustle. Nonetheless, research indicates that most day traders work more than eight hours daily. 

Something to consider is the definition of a side hustle. Some people enjoy day trading enough to view it as fun and therefore have no issue combining it with another job. It’s entirely possible.

Still, it would help if you thought of percentages here. Most people only have enough energy to commit to one demanding pursuit. Day trading involves enough nuances and risks to call for most of your attention during a workday. If you want to mitigate risk and maximize your chances to profit, consider pursuing day trading as a full-time career. 

Mitigate Risk By Honing Your Day Trading Strategies With Sniper.

Mitigate Risk By Honing Your Day Trading Strategies With Sniper.

A risk factor in day trading we haven’t discussed is complacency. Resting on your laurels will cause plenty of strife. 

Success in day trading requires you to continually adapt to the ebbs and flows of the market. Those who flourish in the profession always seek ways to increase their proficiency as day traders. 

In these scenarios, steel sharpens steel. You’ll heighten your chances for success by surrounding yourself with like-minded, strategically-minded traders with a thirst for knowledge rivaling yours.

You’ll have access to that community by signing up with Sniper Trades. Learn more about our services, plans, and how we can offer you a competitive edge in day trading.