3 Reasons Why you Shouldn’t Day Trade
Day Trading sounds fun right? You see people turning a couple of hundred dollars into millions all the time on YouTube. Well, even though I am a full-time day trader. I just gotta be honest here, Day trading is probably NOT for you.
Hello everyone. My name is Shay, aka HUMBLED TRADER. I’ve been day trading for over 7 years now. Yes, it was definitely a struggle the first year I started as a complete beginner. I remember I never had a green month and seeing my small accounts just tank straight down. It was only year 2 that I started making money in trading.
Here are the 3 reasons why you shouldn't day trade:
You’re Struggling Financially
The first reason and perhaps the most critical reason why you shouldn't day trade is if you are struggling financially. I strongly believe that if you cannot pay your bills, if you don't have a job providing you a stable income or if you are drowning in debt, you shouldn't day trade.
I know this might be an unpopular opinion, and I'm sure I'll get some heat for this since we live in a world rampant with rags-to-riches stories on social media where you see people turn small amounts of YOLO money into millions in one trade. An example of this is the wallet that bought SHIB tokens last year and turned that $8K into billions of dollars in one year.
I fully understand that it's extremely inspiring to hear about these stories, and they make you feel like you could do the same if you were in a similar situation. If someone else can turn $100 into $1000 or $10,000, that means I could do the same. Try stopping me.
In psychology, this is called survivorship bias. Survivorship bias is the tendency for people to cherry-pick people or strategies that successfully made it through a selection process and ignore all those that failed. People tend to focus on these survivors, even if they survived in large part due to luck rather than viability
It is that phenomenon that causes us, myself included when I first started as a beginner day trader, to have that false confidence to think that if I see two people out of 100 turning $1,000 into millions, then that means I definitely could do the same, too.
And it’s that false confidence and lack of media coverage that makes us overlook the other 98 people out of this group of 100 who lost all of their $1,000 instead. That is the other side of the story we rarely hear about.
When I first started trading, yes, I admit, I fell for that survivorship bias I mentioned earlier. I thought I could get rich quickly, but the big difference here is I had a 9-to-7 job. Even if I lost my entire trading account, which I did by the way, I still would not be devastated financially.
I wouldn’t owe my broker money, and I wouldn't go into debt and not be able to pick myself back up from the streets.
Again, I had my employment income to pay the bills. That is a big difference here. If you have a stable income and you want to start day trading with some small accounts on the side and start learning, definitely do what you want as long as you are financially stable
I’m not here to discourage people from day trading, but what I am cautioning against is putting the last $1,000 in your bank account toward day trading if you don’t have a job. I think that would be extremely risky and devastating.
There are going to be people out there encouraging you to spend the last $1,000 into “investing in yourself” and purchasing education programs to learn to trade, investing, cryptos, amazon FBA, shopify etc.
I’m really against that. I think the right way to invest in yourself is to make sure you use that money wisely to pay your rent and your bills.
When someone asks me on Instagram or emails me that they have one last $1,000 in their bank account, and they want to trade with me, my first response is, “I’m sorry to say this, but I don't think you should day trade.”
I know this may sound discouraging, but this is tough love. I’m answering this question as if I was being approached by my non-existent son or daughter or my younger siblings, who do actually exist.
I would never encourage my brother or sister to try anything risky if they are struggling with bills or don't have a job.
I'm not being a party pooper because I'm cynical. I'm saying this as your sister, your friend, or as some may even call me, their trading mom. Yes, believe it or not, I did get some Mother’s Day cards from my HT members on Mother’s Day. This is what they mean by I don’t have any kids that I know of.
I genuinely believe that you can only become profitable day trading as a beginning trader if you focus on the learning first, take initial small losses as market tuition and pay your dues.
If you are struggling financially, you will likely disrespect stops, trade emotionally, aim for home runs and forget about risk management. All of those are going to be factors that could lead you to lose the last $1,000 in your bank account.
If what I just described sounds like you, please keep that last $1,000 to pay your bills. Look for a job that will allow you to live a stable life. Once you have your life together, then sure, if you are truly passionate about day trading, perhaps it’s worth revisiting this business.
If you have a job, and you are doing fine financially, then do whatever you want. Whether that's yoloing everything in Gamestop, AMC, or SHIBa inu. You do you; it's your money.
You’re Looking to Get Rich Quick
The second reason you probably shouldn't day trade is if you are looking to get rich quick. Now this is something we’ve talked about many times. Day trading is not a get-rich-quick scheme.
Did I think I could get rich quickly following chat room alerts 7 years ago? Yes, I’m guilty, but did I actually get rich in 1 month? No!
In fact, all of those things like copy trading and chat room alerts or signals are very likely going to lead you to blow up your small trading accounts. Sure you may make $50 here or $100 there following someone else’s alerts to buy or sell, but all it takes is one time to lose $200, $500 or even $1,000.
Following alerts teaches you nothing. You don't know the proper way to plan your trades which includes entries, exits and STOPs. You don’t learn how to manage your risk, so even if the trade goes against you, you keep the loss controlled.
That's the reason many beginner traders had roller coaster PNLs in their first year. It’s because they only focus on the illusion of quick and easy money, instead of planning out their risk-reward beforehand. That's why we call it risk-reward in trading, not reward risk.
Like I mentioned earlier in reason #1, day trading requires you to pay tuition to the market. We all start out losing money in trading as a beginner, but you get to decide how much. Only those who start focusing on planning their trades and trading their plans before clicking buttons will make it in this game.
This business is a trial by fire, so if you want to get rich and make millions tomorrow as a beginner, day trading is not for you.
You’re Incapable of Critical Thinking or Taking Responsibility
The third reason you shouldn't day trade is if you are incapable of critical thinking and taking responsibility for your own actions. Day trading is not like a normal 9-to-5 job, where you go in to work for your boss, and whether you do well or slack off, you are guaranteed a paycheck.
Day trading is a business where you are 100% responsible for your own actions and profit or loss. In fact, you could show up to “work” and still lose money. At the same time, you could also do the right things and make huge profits.
Whether it's a loss or a win, you are solely responsible for your trading account balance at the end of the day. Trading requires you to be able to make the judgment for your own account, your own trading style and risk tolerance.
One trader may see a good long opportunity and buy the stock on the way up while another trader may see a short setting up near resistance. There is no right or wrong answer. There is only trade management and following your own setups. Whether you press the buy or sell button or no trade at all is entirely up to you.
Taking Responsibility
As traders, we need to be introspective and review each win or loss. Where are the areas we can work for next time? How can we improve our strategies or manage our risk better next time? These are all reflections and thinking you should be doing for yourself after each trading day.
Sure, it would be easy to always blame the pumpers, the alerts and how the market is rigged when you lose money, but what happens when you make money? Do you attribute some of those gains to the same pumpers or manipulators then?
I don’t have the answer to those questions, but I know for myself, whether I make it big or lose big, I take full responsibility for my own actions in trading and for my own broker account. If I lose, it's no one else's fault, and if I profit, those gains belong only to me.
Until the CRA enters the door.
You don't have to be smart or have an MBA in finance or economics to day trade, but you do need critical thinking skills and need to be mature enough to take responsibility for your own decisions. Otherwise, trading is not for you.
Conclusion
Remember kids, day trading is a risky business. If you are struggling financially, if you think you could get rich quickly or if you cannot take responsibility for your own actions, then day trading is definitely not for you.
Again I'm not trying to be discouraging. I'm just being real and not feeding you the Kool-Aid. This is tough love. However, if none of the reasons we just talked about apply to you, then feel free to day trade away.
Don’t feel like reading? Watch the video.
