Day Trading: Side business or risky investment?
Many people may have information about the benefits of day trading as a side business, but maybe they haven't thought about trying it out to see how it works. If you are interested in day trading, then perhaps after reading this article you will want to try yourself in it. Do you think it is possible to get a reward from day trading?
Theoretically, day trading can be a side business because advisors can trade with traders. However, day trading is too risky because too many trades during the day can lead to a rapid loss of capital.
What is day trading?
Day trading involves buying an asset and selling it within 24 hours. Day traders can use the currency and stock markets to trade, and quite often short-term trading methods are used to complete the transaction.
People who make a living by day trading can use traders' own tools, such as building price charts, adjusting the price chart to the minimum possible time interval to more closely monitor short-term price movements. Although some techniques may require the use of tools that are not related to price charts.
Day Trading Strategies
Some of the basic techniques used by experienced day traders include:
- Range Trading: This technique works at the trailing level and resistance support to make a deal. Trading in a range requires a good understanding of the price range in which the stock will move.
- Scalping: A technique that uses minor price movements throughout the day. Using a scalping strategy, a trader buys excess assets at a price below the retail price, and then sells them to others who are ready to buy support at the retail price.
- High-frequency trading: This technique often uses bots that can glide through markets, looking for potential open doors that match the measurements of the bot's client. Bots are constantly looking for short-term market failures to profit from a high-speed sequence of trades.
- News-based trading: This strategy can be considered one of the most effective because it uses genuine news that affects the industry or organization. Professional traders use news-based trading to their advantage. For example, if a company publishes a quarterly report and it turns out to be better than expected, or acquires another company that is actively trading, the company's shares may rise, and if the company publishes a depressing report or had to declare bankruptcy, the shares may fall.
Day trading is active trading in which traders try to make a profit by buying and selling financial instruments on the same day. Depending on the traded asset, time frame, market conditions and trader preferences, various strategies can be used.
Some of the most popular strategies are scalping, range trading and high frequency trading. Scalping involves buying a security and selling it quickly with a small profit. Range trading involves tracking price levels to identify potential breakouts or drops and taking advantage of short-term price changes. High-frequency trading uses computer algorithms to make a large number of transactions at high speed, which allows traders to profit even from small price fluctuations.
Risk tolerance, market knowledge and trader psychology are other factors to consider when choosing a day trading strategy. To achieve the best results, traders should choose the methods that best match their risk tolerance and level of market knowledge. In addition, when using any day trading strategy, it is necessary to maintain concentration, discipline and patience, as these qualities will help traders successfully navigate the often unstable and stressful world of day trading.
Could day trading be an ideal side business?
Day trading is not an ideal side business for the following reasons:
- You risk money to make money, and only 5% of traders can achieve profits as traders.
- Day trading often leads to excessive trading and high commissions.
The maximum annual profit of the best day traders in the world is 20%, so if you want to earn $1,000 per month, you need at least $60,000 investment.
Although day trading can be a risky way to earn money, many people have succeeded by using this method as a side job, earning income from their trading activities to support themselves. At the same time, they pursue other interests or work in a different specialty.
There are several factors that make day trading an ideal side business. First, you can do it from anywhere if you have access to a computer or mobile device with an Internet connection. This means that you can set your schedule and work anytime, anywhere, which gives you more freedom and flexibility.
Secondly, it is relatively easy to start trading. All you need is an online brokerage account and basic market knowledge. Suppose you are willing to spend time and effort studying investment strategies, market trends, economic indicators, and other vital concepts. In this case, you will be able to succeed in day trading relatively quickly.
Finally, since day trading does not require large initial investments or standing commissions like other types of financial investments, it can be relatively affordable for those who want to try themselves as a side business.
Although day trading as a side business has its advantages, there are also some potential disadvantages that should be considered before embarking on this investment strategy. For example, the fast pace of day trading means that it can be difficult to track market fluctuations throughout the day. In addition, there may be periods when market conditions are unfavorable for profitable trades, which means that your investments may suffer losses, even if you have made the right trading decisions in the past. Another potential disadvantage is the risk of incurring a lot of debt due to frequent losses on trades, which can make it difficult to pay bills or fulfill other financial obligations when you are trying to build your portfolio using day trading.
In general, whether day trading is suitable for you depends primarily on your risk tolerance and willingness to take risks as part of your investment strategy. If you are looking for an easy way to generate additional income but don't want to take too many risks, choosing another side business may be a better option than day trading as a side business.
The problems of day trading for secondary traders are as follows:
- Missed opportunities due to day job employment
- Lower returns due to the fact that the day trader does not work full-time.
- Sophisticated trading tools such as analytical software, news, price and headline tickers are not available.
- The constant buying and selling of assets makes it difficult to make long-term profits that strong trading stocks can bring.
- Start day trading under the impression of quick earnings.
- Be well informed about the fees and risks of day trading.
Excessive attachment to a particular asset can be a risk for novice day traders. This mainly applies to asset classes such as cryptocurrency. News bots can trigger a large number of social media posts from people who have over-invested in a particular cryptocurrency or digital token. For example, when the Bitconnect Ponzi scheme failed, people trapped in this trap lost a huge amount of money.
Fees and taxes must also be taken into account in day trading. For example, Etrade charges customers $4.95 per transaction if they make at least 30 transactions per quarter. In addition, you will have to pay taxes on every capital gain earned as a result of trading. All these parameters automatically reduce the profit earned from day trading.
Conclusion
The truth is that many people who have tried to engage in day trading as a side business give up after a couple of unsuccessful trades. If you don't want to risk your money or don't want to spend the effort to create a strategy, you can choose another type of side business that involves less risk or no risk.
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