In short day trading is the buying and selling of a security in one day, trying to make money off of incremental gains in the purchased security.  There are a thousand and two "strategies" that claim to be able to predict the movement of securities based on volume, trending etc...  In our opinion these strategies hold as much water as a pasta strainer.  Different studies state that the vast majority of day traders lose money, this is not surprising.

So what exactly are the principles of day trading, we admit we do not know them all, nor do we care to, but some of the key tenets we came across when researching this article were:

-don't hold a position over night
-cut your losses quickly
-get out while the stock is on the rise.

Ask yourself a few questions.  How many times do you think Warren Buffet, Peter Lynch or Charlie Munger have bought a stock and sold it in the same day?  Any student of value investing will quickly tell you that what you are engaging in is gambling not investing.  Secondly cut your losses quickly, if you really believe in your investment why do you need to cut your losses you know its inherent value don't you?  And lastly why get out of a security when it is on the rise unless it is wildly overvalued and you want or need your money back?

Frequently day traders, or even week-long traders, have margin accounts essentially investing with borrowed money, this compounds profits and conversely losses.  If you don't have the money to invest don't invest it.  Would you take out a loan to buy lottery tickets?  Why should day trading be considered any different?  Another disturbing fact that came up more than once during research was that day traders were sometimes buying the wrong stocks.  Not to be confused with the wrong choice of stock, much worse, they were actually punching in incorrect stock symbols since other securities shared confusingly similar letters.  So instead of buying xyz stock they accidentally bought xyx stock.

Why did such an obvious scheme become so popular?  Its simple the more you trade the more the brokerage house makes, much like mutual funds if you make money they make money if you lose money they MAKE money, so brokerage houses promote the idea of being able to become fabulously wealthy overnight and human nature being what it is…If this article hasn’t convinced you to stay away from day trading we can do nothing for you.  People can and will be suckered by get rich quick schemes long from now but if you get the urge to begin day trading think of these words:  what would Warren do?

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