If you’ve been following our site for a while, you have picked up some great info on the benefits of day trading, and how to do it responsibly. While all of this is great and valuable information, it skips a very important question: Should you even be a day trader? As much fun as it sounds to spend a few exciting hours using your Saving Advice education to make a few extra bucks, the risk involved can have real-life ramifications on you and anyone who relies on you as an income provider. So, here are a few serious questions you should ask yourself when evaluating whether or not you should become involved in day trading.
How much money do I have to day trade?
The first and most obvious question that comes to mind. Do you have any money to dedicate to your brokerage account? Now, this isn’t referring to how much you are willing to utilize, but how much you can responsibly choose to pour into your new hobby. Day trading is a risky endeavor, and you should only trade with money you are able to lose entirely. DO NOT USE YOUR SAVINGS TO DAY TRADE.
If you have a set amount of money you save every month, do not use any to trade; day trading is not investing, it is gambling. Evaluate how much money you have open in your “fun” budget, and use some of that to day trade. This is especially important if you have kids, as their financial security must take priority over any potential risks. If you are already having trouble getting 10% of what you make put away in savings, you should not be a day trader.
How much time do I have to research?
Great tools and chats exist to assist you in real-time when picking day-tradable stocks (I personally use Techbud’s Discord but have also heard good things about Investors Underground). Even so, you should always do some personal research before buying any stock. As a day trader, you need to allocate more time than just the few hours you spend each week trading. On your off days, you should be keeping your ear to the ground on low-price stocks that may be active on certain days, and get informed on how high they typically go before getting dumped. If you don’t have at least 2-3 hours of dedicated time per week to research, you should not be a day trader.
How much stress can you handle?
More goes into day trading than the money, time, effort, and brainpower you have expended already. The cost that hit me the hardest surprised me, and that is the stress that comes along with this hobby. I had never really gambled before I started day trading, and any trading I had done was long-term and very conservative. When I began, the anxiety I felt was oppressive. Once the money left my brokerage account, my hands would sweat, my heart would race, and the thought of losing it all overcame me. That being said, if you aren’t the type that can handle acute stress, steer clear. Those who are typically risk-averse, or have issues with anxiety, run the risk of freezing up. As a result, you may end up unable to hit that buy/sell button at the perfect moment, which can be extremely costly.
I hope this helps you get started (or not) on your day-trading journey. Make responsible decisions, take care of your savings, and only trade what you’re ready to lose. Risk plays a major role in this game, and it is up to you to decide whether it is worth it or not.