The Gamble With Day Trading

To be perfectly clear we do not in any way condone so called day trading or any type of short term investing.  Our clients do not day trade and as advisors we would not facilitate any kind or type of short term investing. That is why most day trading is done through online trading platforms through so called discount brokers.  Those are the brokers you see running expensive TV advertisements!  You wouldn’t go all in at the casino with your retirement savings, right? Well, when it comes to short term or so called day trading, it’s almost like betting everything on the next roll. If you’ve ever played a new game at a casino, chances are you sought the advice of an experienced player prior to placing bets. The same concept can be applied to retirement investing.

What is Day Trading?

Most simply, day trading is defined as short term trading often within the duration of one day. Investments held for less than six months are considered to fall under the day trading umbrella. In comparison to long term investments held for longer than six months, day trading comes off as a get-rich-quick tactic. Day trading is almost never profitable and most lose almost all of their money!

Robert Deel, a trading strategist and president of an independent educational company that trains day traders, specifically those who trade within one day, calculates that 92% of day traders lose money. Of the successful 8%, only 2% consistently experience day trading success. So 98% eventually lose all or most of their money, the odds are not in your favor for those very short term trades.

Emotional Decision Making

Due to the fleeting nature of day trading, participants are more likely to become excited and play off emotions. The common mantra echoed is “Buy high, sell low” the unfortunate tactic often adopted by those making “trading” decisions instead of “investing” decisions. There are also inexperienced investors chasing returns who may purchase a stock or mutual fund simply because it has been doing well. Remember, past performance does not dictate future performance! It’s almost like betting on double twos without knowing the rules of the game. The bottom line is to recognize day trading is not investing and riskier than other activities. An advisory firm will not participate in short term trading and encourage long term investing.

Should You Day Trade?

Would you bet your life savings on one roll of the die? Probably not. The risks associated with day trading outweigh the far and few between rewards. Growing your nest egg should be a thoughtful investment, not a get-rich-quick scheme. Financial advisors encourage long term investing and a wise investor heeds that advice.

When investing/trading your money, uncertainties and emotions are likely to hit closer to home, no matter how rational you believe you are, or how much you think you know. Advisors know the various asset classes, sectors, cycles, etc., and avoid short term trading like the plague! Choosing the investments for your company retirement plan should be with the help of a professional and reviewed regularly.

Whether you have a dollar or a million dollars in your retirement account you will be able to explore the value of a real advisor simply by visiting the Self Directed Brokerage Account advisor contact site. From this site you can begin to take advantage of the features of your retirement plan.  If you wish you can also download a fact finder sheet that can be used to create your personal retirement financial plan.

To learn more about Rick Willoughby, view his Paladin Registry research report.

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