Myths Unveiled about Day Trading

The day trading has a mystical itself – there is a glamor and excitement in this trading style that has a unique appeal. However, this mystique has also led to a number of common misconceptions about intraday trading. Experienced traders know that these ideas simply are not true, but less experienced traders are often misled by these myths about daytrading.

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Myth 1: The day trading do not work

Some people – including some prominent researchers – have said that it is impossible to make money consistently from intraday trading. They conclude that high frequency trading at intraday level can not produce profits once commissions and slippage are taken into account – the slippage is when trades are executed at a less favorable price than expected when the trader enter the market.

However, a pragmatic look will show that this is not the case. Many hedge funds and banks use full-time intraday traders and these traders make their living entirely from commissions on their profits. If they were not profitable, they would not earn money and eat. In fact, transaction fees have become incredibly low, and traders have learned to recognize repetitive patterns that can exploit over and over again. Being a successful trader requires skill and the right temperament, but can be very profitable.

Myth 2: Intraday trading is a zero-sum game

Another myth about daytrading is that it is a zero sum game. In other words, for every trader who makes money, there is another who loses. The idea behind a zero-sum game is that when all the victories and defeats add up, everything balances to zero. Traders and individual traders can win, but only at the expense of others.

There is nothing further from the truth. Financial markets in general are not a zero-sum game, the assets prices rise and the total market value increases. The fact that intraday traders work at short intervals does not mean that the market ceases to gain in value. Gains in daily individual trades may be smaller than the long-term positions due to the difference in timing, but overall, net profits are generated.

Myth 3: The day trading is a quick way to make money

We will not spend much time on this myth because it is not worth it. The fact is that daytrading is far from easy as it requires emotional, physical and mental strength. This trading style is not for the faint of heart and if someone tells you otherwise, that person has never been a trader who has traded at intraday level.

Myth 4: Intraday trading involve great risk

Day trading is definitely riskier than long-term investment, but those who trade in this way are not foolhardy. It is perfectly possible to lose $1,000,000 with long-term investment, and this is just as true for intraday trading. Losses for wrong actions are higher in swing trading or long term trading, because if the market moves against the price movements are bigger, although the trading frequency is lower as the transaction volume.

While in the daytrading, because price movements are lower, the trader must use larger positions, which can also lead to high profits and losses. Because of this, the intraday trading will be as risky as you want it to be – and experienced traders know how to manage risk effectively. The biggest challenge for newbies intraday traders is that they become too emotional and make irrational decisions – if they stick to their plan and avoid impulsive actions, then they can generate good profits with acceptable levels of risk.

Myth 5: Intraday trading is a gamble

Yes, it is true that in the wrong hands, intraday trading can become another form of gambling. But successful intraday traders actually use this fact to their advantage. At intraday level, by doing exactly the opposite of what might be called “game” is precisely the way that professional traders continue to make money. Instead of chasing losses, they scaled down. Instead of betting at random, they wait for new opportunities with little risk where the odds are in your favor. In fact, successful intraday traders are anything but gamblers.