The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.—Jesse Livermore, How To Trade In Stocks
Everyone who first thinks of the stock market and how to invest thinks of Day Trading. And let me stop you right there. There are many many reasons why not to day trade and I’ll share a few with you but the bottom line is it’s more like playing at a casino. Instead you should go ahead and skip to our article on How to Invest! You may not get rich overnight but anything that promises that is promising way too much.
- The Markets are filled with very smart people Trading is zero sum game like poker. When someone buys, someone sells. When someone loses money in poker someone else wins. If you really think you can trade you need to be smarter than people like Ray Dalio who have more analysts, more traders, more money, more inside information and are simply smarter then you no matter who you are. It’s not worth it.
- You can’t predict the future. Everyone thinks they can. But they can’t. Everyone starts with the basic assumptions in the market. I can’t tell you how many friends have produced to me reasonable sounding trades that won’t work in the real world for anumber of reasons. It all starts with knowing so and so will outperform so I will buy that it will go up and then I will sell. It’s sounds so easy. They don’t factor in that the news occurs before the market opens and by the time they can act with their personal computer it’s already factored in or that there is high frequency traders. Let’s say you want to buy some shares of Apple. These guys have computers with cables as close to exchange as possible and slip in to be the market maker and buy some from someone else quicker to sell to you 1/10 of a penny higher and makes a sliver of money. These guys make money every single day and it’s a race to the bottom: who can get their faster, quicker, and more deflty to screw you out of 1/10 of a penny every time you make a trade. Then there’s machines that are event driven that trade as soon as news is reveiled acting quicker then you do. In the long term a lot of this adds up to noise which is why you can learn how to invest correctly.
- Insider Trading People with inside information: If you know some drug is going to be denied by the FDA or approved by the FDA or that two companies are talking merger how is a common person supposed to compete with that? Sure it’s illegal and many people get caught but do you really think the government catches everyone? And congress. They passed a bill to ban it for members but quietly repealed the bill.
- Fees Trading is exactly what the middlemen want you to do. Wall Street is a giant casino and they win whenever you are trading. They love chaos calamity and people buying and selling because in the end the Casino always win when you buy and sell and it’s why people that hold forever thrive. The more often you trade the more fees you’ll generate. Those small fees add up surprisingly.
- Blood Pressure and Your Health Are you ready for a trade going against you? You will sit there and feel the blood pumping through your entire body like you lost the biggest poker hand of your life. Are you able to stare at tiny flashing numbers on a monitor for long hours. You will feel your heart beat and it’s very bad. Furthermore if you react like this you aren’t made for markets in general. Either you’re trading too high a portion of your own worth or you simply worry to much. Trading and markets in general require a unique temperament. Some people have it. Some people don’t. When your trades go against you you will eat worse and neglect your health even further. Most people don’t have the temperment to deal with falling markets.
- It’s not rewarding nor productive When you sit there and trade every day you’re not networking with friends or other professionals nor learning anything new about the world or business. Every second you sit there watching a trade you are removing yourself further and further from any notion of a career since day trading is not a career. Watching numbers on a screen every day is no way to live and every moment that you waste doing that is a moment wasted when you could do amazing things like start web sites or help people! You’ll think about doing those things and instead feel you’re missing out on the market on profits. You’ll always need more. And the story doesn’t even end well for the lucky few…
Investing is very different then trading. Trading is a tough game and very few should bother.