Let us first understand what day trading is before we delve into the risks that are involved with it. What a day trader does is he restricts his investments to a day. This means that whatever he buys on the day he sells on the same day. The philosophy is there is hardly any chance of a stocks hitting rock bottom over the space of a day.
So even if there are losses, it will be marginal. Of course, the profits are also limited since stocks get hardly the time to gain value in just a day. Of course there are exceptions when stocks plummet or shoot-up in hours. But those are generally irregularities. It must be understood that day trading is not something illegal or unethical.
Risk One
When someone invests on the stock market there is generally a hope for high returns. Day trading runs counter to that philosophy. Of course you can make high profits even in day trading but for that you will need huge capital where you can pump in money to buy rising stocks, and then sell them at the end of the day when the stocks have gone higher. It is the number of stocks you buy that makes the most difference and not the change in the price of the stock.
With a small capital you wouldn't be able to make those kind of buys. What then happens is that you tend to buy stocks of small-caps which involve a lot of risk. If you are buying only small-caps over a long period of time then chances are you will be making losses. Most small-caps fail to show profits and it would be difficult just to pick those ones that grow. You are bound to make mistakes.
Risk Two
Day traders discount the history and performance of a stock. When a day trader buys stock in a particular company, he will try to buy the ones which have shown profit in the recent past. But it might happen that on the day he bought the stock it showed a marginal decrease. There is every promise for the stock to again gain momentum and go up.
But the day trader has to sell the stock cause as a day trader you cannot hold on to any stock at the end of the day. So while you were almost certain of profit over a period of time, you end up making a loss just because of the weird way day trading works.
Let us first understand what day trading is. What a day trader does is he restricts his investments to a day. This means that whatever he buys on the day he sells on the same day. The philosophy is there is hardly any chance of a stocks hitting rock bottom over the space of a day. So even if there are losses, it will be marginal. Of course, the profits are also limited since stocks get hardly the time to gain value in just a day. Of course there are exceptions when stocks plummet or shoot-up in hours. But those are generally irregularities.
It is always advisable that you first train yourself from a day trading firm. There are definite advantages of doing so. Once you work from their premises, you are exposed to the best software platforms available today. You also get to work on the most advanced hardware. But the greatest advantage is that your peers there will share knowledge and experience which you will hardly get anywhere else. Yes, you can have the information about the markets from various sources. But how to interpret the same is the skill that you need to develop. And this is best done while interning in a day trading firm.
Finally, you got to have the passion for day trading. Many get lured into day trading online because of the promise of ease and comfort that online trading comes with. But to be really successful in day trading, be it online or offline, you have to have that passion in you. You got to follow the market trends every day with a lot of interest. You need to study your stocks regularly. It is expected of any day trader to trade every day. It is almost like going to office. And that requires a lot of dedication and motivation, especially when you are working from the comforts of your home.
The other thing that you will need and plenty of it is discipline. To be a successful day trader you have to have that discipline which will stop you from holding on to stocks which have made substantial profits over the day. You will require the mind of a saint to let go. and you will have to develop that. Day trading works only if you are true to its philosophy. And that requires a lot of self-control and restraint.
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