Day Trading Myths

Money Stacks Day Trading Myths

Many day trading myths have developed from the skepticism that comes with anything that sounds like a get-rich-quick scheme. However, day trading isn't a get-rich-quick scheme. It does actually take a lot of time and effort to get good at it. Nevertheless, there is a magic behind day trading that makes it work, which is the same magic that makes banks and other financial institutions wealthy.

The following are some of the most prevalent day trading myths.

Myth 1: You Can Lose All Your Money in One Trade

While theoretically you can lose all your money in one trade, there should be no reason why anyone should ever lose more than 1% on a trade. Day trading is all about risk management, and the very basics of day trading strategy require that you set and follow your stop-losses.

If you buy a stock and within 1 minute it hits your stop-loss, then sell the stock! Only the unskilled stay in the trade, and worst is those who actually add to the trade.

If we are trading a volatile stock, then it's possible it may go against you by 10% in one day, so don't stay in a losing trade. If it hits your stop-loss shortly after buying it, then you were likely wrong about the reversal signal. We are not investing long-term, we are day trading.

Related: Stocks vs Forex: Why Trade Forex?

Myth 2: Day Traders Succeed by Gaining Huge Percentages on Trades

The two secrets behind successful day trading are leveraging and the magic of compounding. The most successful long-term day traders typically aim for only a 1% gain on their trades. Even traders who claim to make $1,000 in one day are trading thousands of shares with roughly $100,000. However, because of compounding, a 1% gain per week translates into 68% gain per year, which is well above the 10% goal of most stock market investors.

Traders with an account balance of $25,000 can realistically make $60,000 yearly in profits. How? Because $25,000 has the buying power of four times the account value, which is $100,000. So that 1% gain of $1,000 is actually a 4% gain on the account value of $25,000 which translates into a 340% increase per year. This is the power of leveraging.

Here's the Math:

While there are 52 weeks in a year, imagine multiplying your money by 1.01 x 1.01 x 1.01 (52 times). This would be 1.01 to the 52 power or 1.01^52 = 1.678 (68%).

$100,000 x 1.678 = 167,800 or over a $60,000 gain.

However, if the account balance was actually $25,000 to begin with then that's $85,000/$25,000 = 3.4 or 340% increase.

Day traders who claim they only trade breakouts and huge price spikes are fooling everyone by making it seem impossible to be successful unless you have their training. Guess what? They are making money off of people enrolling in their training program, rather than day trading. Then, when these students fail, they assume they are the exception.

In reality, anyone can be successful by aiming for a low percentage on a volatile stock. Rather than looking for that special signal or unique moment, day trading only requires that you get in the trade while the trend is up, get your 1% profit, and get out of the trade.

If you are trading with $2,500 cash, but you are using your full buying power of four times your account value ($2,500 x 4 = $10,000), then you are making $100 from that 1% gain which is actually a 4% gain on your $2,500. If you are trading with $10,000 cash and are using your buying power of four times your account value then you can make $400 from that 1% gain.

Myth 3: Day Trading is Stressful

Day trading can be stressful...if you are always chasing the highest possible gain, and if you are watching charts all day. Greed is the enemy of all day traders. While others are chasing a 5% gain on a unique breakout and developing high blood pressure and heart disease, many successful day traders are calmly gaining their 1% that could have been made on several trends during the day.

Successful day trading is all about having a reliable strategy.

Many long-term day traders who are highly successful will day trade for about 15 to 30 minutes and be done for the day. With an account value of $25,000 they trade on margin with four times their account value of $100,000. They gain their 1% of $1,000, which is actually a 4% gain from their $25,000, and then they are done for the day.

$1,000 in 30 minutes, how does that sound to you? If that is the only trade you make the entire week, that would be $4,000 a month. How does $4,000 per month from a couple hours of work sound to you?

Myth 4: Day Trading is Gambling

Day trading is only gambling if you don't have a strategy, if you ignore your stop-losses, or if you are always chasing an unlikely breakout or huge percentage gain. However, when you aim for a feasible and realistic 1% gain on a stock that has an average volatility over 5%, then day trading is simply all about good strategy and risk management.

Remember that a 1% gain on your account value per week translates into a 68% gain in a year, and using your four times buying power can even result in a 340% increase per year.

Stocks vs Forex: Why Trade Forex?

Want to easily calculate your stop-loss and profit goals?

Download this easy-to-use Stock Profit Calculator. Just type in the stock price and it will automatically fill with stop-losses and profit goals. You can also change the percentages to match your personal needs, as well as enter in your margin use in order to keep your stop-loss at -1% of your account value.

Normally $15, the cost is currently only $9.

Stock Profit Calculator for Daytrading/Day traders -

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4 Simple Steps to Turn $10,000 into $133,033 in 5 Years Day Trading

How to Day Trade with Daily Volatility (Stock Selection)

Day Trading Strategy Basics

How it Actually Feels to Day Trade

Day Trade Articles

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