What it Takes to Be a Day Trader  

 

Anyone with even a passing familiarity with finance knows that investing is the best way to build wealth. Without the interest that is generated by sound investments in stocks, bonds, and other investment vehicles, your hard-earned savings will lose value due to inflation. With that interest, though — and especially with compound interest — those savings can grow, instead.

But investing can take all kinds of forms. If you’re focused on maximizing your earnings in a non-financial career, you may be content to invest passively, use a buy-and-hold strategy, or outsource your financial decisions to a trusted financial advisor. On the other hand, you may decide that to absorb yourself in the world of finance itself, putting aside traditional salaries entirely in order to focus on making successful moves in the market. Managing your own money and trading actively while the market is open is called day trading. It’s not for everyone, but it can be a path to immense wealth for some. Is day trading an option for you? That depends. Here’s what it takes to be a day trader.

Time

Make no mistake: day trading is a full-time endeavor. The stock markets are open during regular hours on weekdays (except for holidays), and your accounting and planning tasks — along with any trading you do in foreign markets and and after hours — will keep you busy before and after the market closes. Taking days off can mean missing key chances to maximize profits and avoid losses. Trying to day trade on your phone while working another job is not a good idea, as you’ll need to be focused and dedicated to the task at hand. If you’re going to be a day trader, you need to carve out real working hours and stick to them.

Money

You don’t need to be rich to become a day trader, but you should make some plans before you dive in. For one thing, your income will become less certain when you switch from a salaried position to day trading: you may have big weeks, sure, but you’ll also have leaner times when you fail to make the right moves — or are simply waiting to move them, and don’t want to pull cash out of good positions too early. To make this work, you’ll need a nice emergency fund to pull from so that you aren’t forced to sabotage your own financial moves by pulling cash from your trading accounts too early.

You’ll also need a starting point for those trading accounts, of course. Big profits are great, but you’ll need cash to get those profits. This includes cash to buy stock, and assets to use to convince your brokerage to let you trade on margin.

Knowledge

If you have money to support yourself, money to trade, and are ready to commit to day trading full time, then you can get a brokerage account and get started. But if you want to make real money, you shouldn’t go in there and wing it. Before you get into day trading, do your research. Learn how to identify rising companies and how to steer clear of dangerous situations. Learn how to manage risks do more daring things. Learn how to day trade penny stocks or how to trade on margin. And, of course, don’t forget to learn smart and safe methods for keeping enough cash in safer spots to protect yourself. Even the most careful research and extensive experience is no guarantee against a bad trade or a rough run of luck.

Guts

If that last sentence got you down, you might not be a day trader in the making. But if risk is your cup of tea, you’ll love the fast-paced world of finance. Day traders can make massive profits, but there’s no denying that they face serious risks, too. You can manage risks by adjusting how much you put in play on riskier stocks and by keeping an emergency fund and a slow-growth fund as insurance policies, but there’s no way to day trade without risk. As long as you work as a day trader, your means of making money will be risking money. Day trading takes what the finance world calls a “high risk tolerance,” or what we regular folks might call guts. If you’ve got the guts, day trading has something to offer you.

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