Day Trading Can Be Risky

Trading can become as addictive as any narcotic in the world. The hardcore trader lives for that next mouse click, thinking he can reverse his fortunes in the blink of an eye. He is unable to see poor trades as losses; rather he sees them as detours. He does not see profit as a financial reward; he sees profit as the chance to make even more money. He will siphon every bit of his profits back into the market and risk it all on the next set of trades that he chooses to make. At the end of the day, he will have used all of his available trading power and no matter what the actual cash balance is, he will call it a good day. The adrenaline rush is almost enough for him to count it as a win.

Undisciplined or uneducated trading is not only dangerous; it can undermine the entire market system. As more traders fail in larger and more public ways, the public becomes more nervous and less likely to invest any money at all into the market at large. The more money that stays in banks or at home in empty peanut butter jars means that much less flowing into the stock market and into new and growing businesses. If those businesses cannot manage to show a profit fairly soon into their operation, they will fold. If yet another business folds, then public confidence will fade even further, and the cycle is repeated. While the entire economic downturn cannot be blamed on reckless day traders, they certainly are not helping in the long run.

If a day trader is working as part of a group, that group will lose confidence in him if he makes several bad trades- the more money that he loses for them, the less likely they will be to give him more money to invest.

The day trader also puts himself at risk by not watching the movement of his stocks closely enough. If he buys a failing stock at noon, but does not manage to unload it by the end of the business day, he will have to suffer that loss. Once he tallies the cost of that bad transaction, he has to hope that he has enough to make his minimum or face an equity call. If he cannot make the call, he either has to come up with enough money to make the call, or he will face the sanctions and restricted trading.

Finally, the day trader risks the loss of a graceful exit if things get truly bad for him. The lure of high money, and fast living can become too much to walk away from for some people. Remember the keys to successful trading: education, preparation, careful monitoring of all of your stock’s activities, a set loss cap and an exit plan. Because there is such a high amount of money needed to keep a day trade account open, it can be hard to back out of.

Not having any risk capital can be bad as well. You want to keep enough money to avoid dipping into your profit earnings. Having an adequate amount of risk capital will eliminate the need to do either. Set up the account with money ahead, to cover those riskier trades and you will not have to worry about how to cover your account at the end of the day, regardless of how the day’s trading went for you.

Finally, not stopping when you are close to, or at your loss cap is probably the most serious of the risks that the day trader faces. The deeper you allow yourself to go once you have neared that limit, the more that you will stand to lose if you cannot reverse the downward trend.

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