Pros And Cons Day Trading

Last Updated on January 16, 2022 by Oddmund Groette

Let’s briefly look at some of the pros and cons of day trading.

When I talk to the publisher about the books I have written, he says people are crazy about day trading. I am also fascinated by this fancy for day trading. Is investing too boring? Do we like to “gamble”? Do we need excitement? Punishment/SM (for those who lose)?

Personally, I like day trading better than investing, even though I do both. I am certainly not a “gambler” – I consider myself very rational. If I saw a bigger potential in investing for the capital I allocate to day trading, I would certainly switch. Both day trading and investing have their pros and cons. If you are unsure, please read our article called trading or investing – what is best?

I think anyone considering daytrading should have a look at the pros and cons underneath.

Pros of day trading:

  • High turnover of capital. A good trader is capable of making insane returns on the capital invested (if he or she is good).
  • Potentially less drawdown than investing (think about 2008 for example). 2008/09 was, by far, the best months of my day trading career.
  • Less risk of having adverse news going against you (most news comes outside market hours).
  • Leverage – but only if you know what you are doing.
  • A great mental and intellectual challenge.
  • The law of big numbers is easier to exploit (trade more).

Cons of day trading:

  • Does not participate in the long-term upward drift in stock prices exhibited by equities.
  • Requires a great deal of time, inappropriate to mix with a full-time job.
  • Commissions and gearing can be ruinous.
  • Requires a lot of time and preparation.
  • Need software resources.

There are too many trying to day trade while having a job at the same time. I say: forget it. You cannot day trade and work at the same time. There is no way that will work, and you end up having an angry boss. You need to treat it as a profession and have a solid plan.

Of course, many in the US West Coast day trade the first hour before they go to the job. That can certainly work. I personally know a couple of guys doing this.

My opinion is that most day traders underperform the market. Lack of consistency, time, resources, weakness of the methodology implemented, commissions, connectivity, automation, etc. makes things very difficult.

However, for those willing to put in the time and effort, there are great opportunities, even with unlimited resources for programming.

This article is short, and hopefully gave a very brief introduction of the pros and cons of day trading.