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Day trading: Do you have what it takes?

Published 8/25/10 (Modified 3/8/11)
By MoneyBlueBook

This is a guest post from Marc Pearlman.

When people ask me if they could be successful at day trading, my first response is, "Do you know what day trading is?"

Most people don't. You might think day trading is about finding the best online brokerage, grabbing a stack of financial reports, arming yourself with financial blogs and news and then diving in.

What many would-be day traders don't realize is that success doesn't come from the uncanny ability to analyze balance sheets and fundamentals like Warren Buffett. And even if you have the ability to interpret charts and price action--the primary skill for day trading--this is secondary to having the strict discipline of adhering to specific rules and guidelines.

Without these rules in place, day trading is like a child playing with a chainsaw.

I'm not judging the merits of day trading. I know both very successful day traders and those who blew themselves up financially with day trading. (For what it's worth, I know many more of the latter variety.) But if you're going to succeed at this kind of investing, you'd better understand what it takes.

What it takes to succeed

Here are observations from my experience as both a professional trader and money manager about what it takes to succeed at day trading:

  • Hard work. Brains don't hurt, but day trading is a skill, and that skill needs to be developed by treating this as a business. A lot of people day trade as a side avocation or hobby, maybe because it seems like an easy road to riches. Don't fall for that mentality. I've known people with a gambling mentality who have been drawn to trading, only to be chewed up because they treated the markets as a casino and not a business.
  • Discipline. Do you ever see the same people wandering around your gym who have no noticeable changes in their appearance from a year ago? It's from lack of discipline and goal-setting. Trading is no different. People jump from strategy to strategy, or worse, have no strategy at all. The importance of discipline to day trading can't be overstated. You may think you have discipline, but the true litmus test is your results.
  • A keen grasp of probabilities. The best baseball players--the ones who get paid the most--hit the ball around three times for every 10 at-bats. A guy who hits it four times for every 10 at-bats is the best in the business. Put another way, even the best baseball players in the world achieve an undesirable result most of the times they get up to bat. Great traders are the same. Making money through day trading doesn't mean you make the right call most of the time. The key is to lose a little when you are wrong (which is often) and make a lot when you are right.
  • Letting go of the need to be right. Some people would rather be right than make money (or would rather be right than be happy, but that's another blog post!). This personality trait makes for lousy day traders. In day trading, you will be wrong more than you are right, but that is not failure, it's probability.

Defining your day trading personality

On a recent episode of "America's Got Talent" (I admit it, I somehow got hooked on a summer reality TV show) judge Piers Morgan told one performer that he did not know how to define his act and asked the performer how he would define himself. The entertainer looked completely bewildered, and it's no surprise that his act fell flat.

Ask 100 people to define their "investment personality," and you're going to get 90 blank stares. Lacking a clear description of your investment personality--are you a trader, gambler, investor or saver?--is a common error, one that can make or break your results.

In the broadest sense, everyone's financial goal in investing is to make money. But that's not enough. You have to find a strategy and set of rules that you'll stick to and will keep you from an expensive labyrinth of mistakes.

Spending some time doing a little self-discovery can yield a strategy that is more in sync with your personality type, which may help reduce some of the emotional impulses that often lead people astray.

Still think you have what it takes to be a successful day trader? You're the only one who can really know. But if you lack any of the key traits or a strong investment personality, don't be surprised if you're in for a long grind--or a financial meltdown.

Marc Pearlman is the author of the Positive Money Mindset and host of the popular radio show Your Money Matters! For more about Marc, visit marcpearlman.com or www.Yourmoneymattersradio.com.

Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Marc Pearlman, Representative. Your Money Matters!

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5 Responses to “Day trading: Do you have what it takes?” 

  1. Andrew says:

    I've tried to play games by dabbling on some day trading experimentation websites and my problem is the 2nd point listed above: Disclipline. I know that my issue is that I would have a ton of trouble sticking with a specific strategy, especially if it's not working out at first. I think I would be too quick to jump ship and I think this is a unique quality in day traders.

  2. fiduciary Adviser says:

    A lousy way to make a living! A fun hobby!

  3. Greg McFarlane says:

    "The key is to lose a little when you are wrong (which is often) and make a lot when you are right."

    I understand that buying low and selling high is also a good strategy. Seriously, is there anything non-obvious in this post? I'd just like to know the stories of these successful day traders you say you know. There really exist people who make enough to cover the fees and turn a profit? OK.

  4. Starshard0 says:

    I don't have a lot of discipline in other areas of my life, but when it comes to personal finance that's where I stand out. I've considered doing some day trading, but I'll probably start small rather than just jump right into it.

  5. Rajandran R says:

    Only Disciplined can run the day trading business. For others,

    9 times gain = 1 time loss

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