6 Day Trading Myths Debunked

Photo Credit: kenteegardin via Compfight cc
Photo Credit: kenteegardin via Compfight cc

In the world of day trading we are often bombarded with various opinions and advice. Some opinions are in accord with each other, some contradict. It’s already challenging enough to keep up with the constantly shifting market. And with all the truths and day trading myths floating out there, this might only add to a novice day trader’s confusion.

We thought it would be beneficial to examine 6 myths about day trading. Whether you’re a seasoned day trader or just starting out, read the following 6 myths dispelled.

1. Trading is Just for the Elite Rich

While it’s true that day traders should start with sufficient capital, it doesn’t have to be an extremely large amount of money. A lot of normal folks (read: non-millionaires) can and do get into day trading as a profession with just the required minimum.

According to the U.S. Securities and Exchanges Commission, the minimum equity requirement is $25,000 to trade.

Be sure to also note the following tenants, per the U.S. Securities and Exchanges Commission:

  • This $25,000 requirement must be deposited into the customer’s account prior to any day-trading activities and must be maintained at all times.
  • A customer can’t fulfill this $25,000 requirement by cross-guaranteeing separate accounts.
  • If a customer’s account falls below the $25,000 requirement, the customer won’t be permitted to day trade until the customer deposits cash or securities into the account to restore the account to the $25,000 minimum equity level.

This is a high barrier of entry. 25k is the minimum and you will need a huge buffer as your skills when your new will be incomplete.  Without a great support system and continuous education its very difficult to win especially if your undercapitalized.

2. The Market is Rigged Against the Small Trader

There’s a myth that the market is rigged against the small trader but in reality the smaller trader is more likely to be more nimble and agile within a fast-moving market.

When a small trader is steeped in research, can react quickly and intelligently and sticks to their proven style, he can be profitable—even against the big guys.  Yes there are HFT’s and algos and all sorts of other boobie traps in the market.  They are designed to take money from the uneducated retail trader.  Those with knowledge and world class tools can use those things to our advantage and actually profit from them!

3. Day Trading is Gambling

If you feel day trading is just like gambling, you’re setting yourself up for some potential disastrous results down the line. Day trading is not all about chance like the roll of the dice, flip of a card or a spin of the wheel. Variables and factors such as research, rationality and reason come into play and are taken into consideration. Unlike gamblers, day traders are armed with information such as facts, figures, past performance and other analysis.

Day trading is a job; it involves hard work and time. Traders will look at money management and risk control while gamblers are praying for luck and chance. A great day trader in a given month may only have 1 or 2 losing days and a handful a year.  What I do is a numbers game and I know if I do the right thing 10 times in a row I will win 7 times. So i may have a few losing trades in the morning but if i keep hustling and doing the right thing at the end of the day I will come out on top.

4. You Need an MBA

While a Masters in Business Administration can augment your business knowledge, it’s not completely necessary to have an MBA to be a day trader. Most successful day traders don’t have an MBA.   Day Traders are entrepreneurs they are businessmen.   A majority of people go to get their MBA’s so that they can go get better jobs.  We have 20 employees now between our different businesses and only one guy has an advanced degree!

When I interview people for our company or look for traders I want to see people out there hustling and building things. expanding their skill set not sitting in a classroom with a book.  You will see in a handful of years beyond very specialized things like doctors etc most college education will be obsolete. They will move college to a shorter more focused vocational style training and your starting to see that now with all these online type virtual learning centers.

5. Beginners are Expected to be Profitable

Unless it’s a great market where junior traders start turning profits immediately, beginner day traders are not expected to be profitable.  The hardest part of trading is learning to make 1 DOLLAR! Learning not to lose is the hard part. It takes so much effort just to learn to finish in the green.  Once you can consistently learn to make just 1 dollar then its a lot easier to scale it to 100 dollars and then more.  T

he easy part of trading is when you can make 100 dollars a day and then scale it to 1000 dollars. That is just a matter of size & frequency.  Unrealistic expectations are a killer of new traders.   When you start out you have this preconceived notion that your going to make all this money as you have seen others do it. Its whats called the HEDONIC TREADMILL (Dr.Menaker)  The always wanting more gets the new trader, 100 dollars is not enough 200 dollars is not enough and so on. So what happens is they just end up taking losses.

The learning curve is huge! This is why training your trading skills is so important but also training your mind.  We have a trading psychologist Dr. Menaker on staff for our Bootcamp to help scrub our classes & do webinars.

6. High-Frequency Trading (HFT) is Making Day Trading Obsolete

With highly sophisticated computerized trading that can make decisions in a millisecond, the old Man vs. Machine scenario comes into question. The game is not lost to human traders—if they trade smarter..

Overall day trading involves hard work, time commitment and the ability to respond quickly—and also a level head. Seasoned day traders can tell you some war stories that will send fear into your core, but a lot are able to control their emotions during the many ups and downs that are part of the industry.

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