Over the last year, I had so many different kinds of messages and questions on my YouTube videos, on the blog, on LinkedIn, and on Twitter about investing, day trading, and related topics. Because of the pandemic last year, a lot of people were sitting at home. they were working from home or were not working from home and we’re looking for opportunities for passive income, or maybe even career change, or starting up a business.
And one of the things that may have popped up is the potential for investing or day trading – in stocks and currencies, futures, options, etc.
So in this video, I talk about whether day trading could be a viable kind of a business option, for 2021, or whether day-trading is a viable option as a career.
So if you’re thinking of getting into day trading so that, you can operate from your home and derive revenue and income from that, then this video is for you.
First, we’ll talk about what day trading is very briefly. Then we will look at what day trading is not, which is very critical. and then what you have to do to become a day trader.
But first to answer the question – is day trading, a viable option for, as a business or as a career, in 2021?
Yes, day trading can be a viable business or career option. Now I emphasize the word “business” because day-trading has to be looked at as a business and not as an easy hobby to make money.
What is Day Trading?
There could be two types of stock investing.
You’ve got investment on one end, where you buy, stocks such as Tesla or Apple, or, McDonald’s and you hold onto that stock as an investment for two years, three years, four, five, or even 10 years. Some people hold on for even longer. And what ends up happening is that stock hopefully would go up in value. And in five years or 10 years’ time, your original investment doubles, triples, etc. Of course, could also go down and your original investment may become negative. So that is investing.
But if you actually buy stocks and sell the stocks or currencies on the same day or within a few days, then you’re looking at the realm of day trading. Day trading is trading stocks or currencies on a daily basis.
What Day Trading is NOT?
Before you sort of look at day trading, brokers, strategies, patterns, and all that, the first thing you need to do is look at what day trading is not.
It is not a get rich scheme.
So if you’re looking for, an opportunity to make quick bucks, then day-trading is definitely not for you, right? It’s it’s, it’s, it’s a complete no-no, it’s not a get rich quick scheme.
It is not an easy business or career.
If you think that, you know, you can sit at home with your laptop or whatever, and trade for a few hours and then, you know, enjoy the rest of the time. Then you gotta be thinking again. Yes, you can get to that stage, where, you know, you, you trade a few hours on that’s it? You’d have to do stock analysis pre-market and then you’ll have to do trade reflection post-market.
But typically you could get to a stage where you work a few hours a day, then you’ll live your life and enjoy it but that takes potentially two years, maybe three, four, or even five years, before you get to that state.
So it is not an easy business or career choice.
It is not a guaranteed revenue generator
Think of the stock market as being very random. Randomness plays a big role and understanding that the market is random is critical for your success as a great trade.
The market is random and there are no guarantees – you could have a ton of losing trades and, you might lose your original capital overnight. But of course, if you go through a process, then you minimize that risk, but there is no guarantee that you will be making money.
It is not without huge risks.
If you enter day trading, with an investment of a thousand dollars, $5,000, $10,000, or even $50,000, without going through some of the steps that I would talk about and without educating yourself, then you could lose your investment. You could lose the shirt on your back, right off the bat in a single trade. I’ve seen cases where people have lost thousands of dollars in a single day and their account is wiped out.
Day trading is not without huge risks, which is to say that it’s, it has huge risks.
It is not a set-and-forget kind of work
At least initially, in your first year, maybe even the first couple of years, it’s not like, okay, I’m going to look at some stocks. Maybe I’ll get some tips from, I don’t know, a newsletter that I joined or YouTube or something like that. Somebody is just giving these tips and saying, buy this stock or sell this stock. And, you know, I’m just gonna send that order. And then that’s it. I’m going to forget it. The profits are going to come in.
The truth is that it doesn’t work like that.
You will have to analyze the markets. You will have to analyze technical analysis, which is analyzing the stock price itself. You’ve got to be really vigilant. So it’s not a set and forget type of work.
It is not cheap to get started.
You could get started for like $500. You can do trade full time and you can derive revenue from it. You pay your bills and all that. But to get to that stage, it’s, you would need a lot more capital to get the kind of returns that would enable that kind of lifestyle.
Don’t get me wrong. It’s all possible. But it takes a long time. If you just start with $500 or a thousand dollars, it’s going to take you a long time to get to that stage. With a $10,000 account, or even $25,000 you would then enter the realm of trading that may give you a reasonable return.
Even if you were to start with 500, there are other costs involved in education time. So if you’re working or if you’re in a business right now and you want to eventually become a day trader, then you’re going to have to sacrifice, a huge chunk of your current time away from your business or away from your, whatever you’re doing to enable you to become the day trader, which means that there are significant costs associated with it. Not just money, but time and opportunity costs. That means if you’re doing this, what, what are you giving up? What else are you giving up?
It is not for emotional people.
That might sound insensitive to say because we’re all emotional, right. Human beings are emotional. So everyone has emotion. Even the most successful day traders have emotion. But what I’m trying to say is that it is not for people who cannot control their emotions because when you’re day trading, there will be ups and downs. There’ll be highs and lows.
There might be a day where you might have a $1,500 loss or more. Or you could have, a day where you made two and a half thousand dollars to $4,000. So there are ups and downs.
If you are jubilant and you’re excited and you’re super happy when you make money. And on the days when you lose money, if you’re crushed, if you’re desperate, if you are, if you have despair then it is not for you. You got to look at this as a business. And when we come to money management, I will talk to you about your expectations and things like that.
You got to learn to control your emotions and look at trades very clinically, almost robotic. You got to look at day trading as almost like an exercise. It’s, not about money going in and out, but it’s about how good a trader you’re becoming. What are your strategies are?
It is not for the undisciplined.
Day trading requires a lot of discipline in terms of having a trading plan, keeping your emotions in check, following through with your trading plan, and not getting distracted. So discipline is required as a day trader. If you are someone who struggles with discipline, then that is what you need to work on first, before thinking of day trading.
Day trading is not for the greedy.
A lot of people do look day trading as gambling. They watch a video on YouTube and they see someone making $5,000 a day, or more. And when you watch such videos greed in us gets triggered. What greed means is that if you were say expecting a hundred percent return on your investment, or if you’re expecting that, without any hard work, without any training, without any kind of effort, you hope to make $2,000 a day, $4,000 a day, then those are components of greed.
You can turn a winning trade into a losing trade or, maybe a losing trade into a worse losing trade without discipline and greed. So you need great discipline to control your emotions and greed. So it is not for the greedy.
What do you need to day trade?
Education, education, education.
Even long-term investors hardly ever educate themselves before putting money into long-term investments. Just because Tesla is a great company, or, Apple is doing well if we put money into them, there is no guarantee they will yield profits.
You need to educate yourself. And with day trading, education is fundamental. You need to learn what day trading is all about. You need to understand how the market works. You need to understand how randomness plays a part in the market, how prices behave, the price action, price movements, and technical analysis. When you’re looking at the price in a chart, and you’re looking at a candlestick chart, you’ve got to understand it.
You’ve got to learn how to read price patterns. A lot of the time they are random. But within the price movement patterns, you got to find an edge. You need an edge to be able to make money in the stock market.
Because markers are predominantly random. And within that randomness, there are windows where you find non-randomness. And that’s where you make money. Because, if the markets are random, then you cannot make money. You cannot make money in a random stock market.
And to do that, you need to study, you need to educate yourself.
So I would say, for example, if you’re starting now, it would take a minimum of three months to learn the basics and fundamentals. And then after three months, maybe then you can start paper trading. Paper trading means you will work on a simulated account. You’re not putting in real money. Most of the brokers and platforms have paper trading accounts. And then you play, with that account in terms of implementing the strategies you have been studying. You then understand whether your strategy is working, or not.
Six months I think is pretty reasonable. You got to put in at least two to three hours a day of study time.
Patience. Passion. Perserverance.
You need patience, passion, and perseverance. Day trading is not a short game. It is not about just getting into the market after maybe spending a week or 10 days learning about it. Or maybe looking at a few patterns and then just blindly going in that note.
You also need a passion for day trading to become a successful day trader.
Having said all the negative things, I can say that if you have discipline and you educate yourself and you follow your process and you become a professional in a sense, right, that means you take this day trading as a business, as a career. You could make a lot of money. You could be making, you know, the kinds of money that you hear people make, but it’s, it’s long term, right? It takes maybe two, three, four, five years. I know traders in their 4the year or 50 the year, or who still making decent money. But they’re making as much as they might make if they were running, another business or if they were doing a job.
I also know traders who into their third year, fourth-year who are making over a million dollars a year, $2 million a year, and so on. So you need passion. You need to believe that this is the right path for you. That the advantages that day trading has, which is you’re your own boss and whatever happens in the market, if the market is going down, or the market is going up, what is happening in the world – you can still trade and make money, hopefully. And, if you have a systematic process and after a while, you could really literally work those few hours of trading and then close your computer, and then enjoy life, spend time with your family, etc.
And you can decide for example, that you’re going to take a holiday couple of weeks. You don’t trade – no big deal. If you get to that stage, so you don’t answer to anyone, you don’t have customers to deal with. You don’t have, vendors deal with you. Don’t have a boss to deal with. You don’t have to commute to work lots of advantages, but, and only if you follow some of these things, right, okay.
Start-up capital that is not debt.
If you are in a position where you can only be trading with money that is debt – either a credit card, or you borrowed the money from someone, your friends, or family, then don’t do it.
Do whatever you’re doing your job, your business, whatever, but save money for your day trading account. Put aside a hundred dollars a month, a thousand dollars a month, whatever you’re capable of. Put it aside to build up this pot, a $5,000 pot, or a $10,000 pot, or even a thousand dollar pot that is debt-free that can be put into the market.
And only trade with money that you don’t need for other things. Don’t put in money that is set aside to pay the rent or to pay school fees.
Maybe if you have set aside money for a vacation, you could use it. You could use that because it’s okay to forgo a vacation. this year, for example, a big vacation modification that might cost you and your family. I don’t know, $5,000, right. It’s okay. Because in the future, and in fact, this pandemic and all occasions, holidays, you know, travel is, is, is decreased. So it’s, it’s probably a good time to actually put that money aside.
Solid reasonable goals.
You need to have reasonable goals about your expectations. Don’t expect to make a hundred percent or 200% or 3000% returns. At least for the first year or two years, expect no more than 10% or 20% return.
Risk management
Let’s call the risk R, which is the amount you risk per trade. Then you should be looking for at least 2R or 3R in terms of profit on that trade. So if you’re risking $500 on a trade on the setup and the pattern, and that situation has to yield at least $1,500.
You should not go into trades when the risk-reward ratio is the opposite. That means you’re risking a thousand dollars to make a hundred dollars. You gotta really understand risk management.
Money Management.
Well, risk management money management could be the same. But money management is also about what’s happening with your capital account. Are you taking out the profits and then just spending it, or are you putting it back into your account?
Because compounding is a wonderful thing.
With compounding. If you’re putting back money, at least a part of it, part of your profits back into your account, then your, your account and it compounds and your leverage increases and so on.
Join A Community
You’ve got to join a good community to become a good trader. And, this is where I would give you a word of caution about communities.
There are lots and lots of scams going on about these treating communities. You might find people on the internet or on YouTube talking about day trading on how much profits they’re making. And then they might have a community that they would ask you to join. You joined the community and they’ll say we give you stock tips that you can follow and trade.
When joining a community make sure the person running the community is educating you. Is sharing their knowledge, not just saying, buy the stock. Don’t take any of those tips and blindly invest in them. You should always do your technical analysis.
When you join these communities they would have a watch list. And those watch lists, they do analyze those watch lists. So just be careful, okay. Be careful the communities you join, even in education, be careful, the courses you join in – don’t blindly go after courses. Because a lot of the courses are just fluff. And sometimes they will teach you bad kind of habits in trading that’s going to affect your trading and you’re going to lose money.
So be very careful.
