When an investor uses fancy technical charts to buy and sell financial instruments (or stocks) frequently within the same trading day, it is commonly understood as Day Trading. I would broaden that scope to include frequent trading within a short period of time.
I come from a school of thought that follows Warren Buffett – there’s no quick and easy money. Day trading is like a driver engaging in frequent over-taking attempts on a crowded highway at high speeds. Yes you can definitely reach your destination faster, provided nothing goes wrong. But something always go wrong. Eventually the odds will be stacked against you and it is likely fatal. I personally do not recommend day trading for beginners.
However, having said that, day trading can be very seductive, powerful, enticing and exhilarating to the unsuspecting investors. Lucky for us, Darth Vader was not a stock broker or the famous scene on Cloud City from Star Wars will play out very differently:
Vader: Luke! Join me and I will complete your training with my technical analysis charts! With our combined strength, we can take over the stock markets by reaping indecent profits from quick and frequent trades!
Luke: I’ll never join you!
Vader: If you only knew the power of the dark side of day trading!
Luke: Yoda told me you will ruin my financial returns and fortunes!
Vader: Luke! I am your broker!
Luke: No…no…it’s not true! That’s impossible. I know each time I trade, I would incur a fee of approximately 2% of the total transacted value. Trade 10 times in a month, and I would lose 20% in transaction fees! Look, it already cost me a hand!
Vader: Search your feeling and you know it’s true…Luke! We can beat the stock market and rule the financial world…It is your destiny. Join me and we will rule as broker and investor!
At this point, much to the credit of Luke, he resisted the temptation to join his broker and escaped.
While I understand that you can reach your financial goals through day trading, buying and selling often, but the risks of failing far outweighs the potential gains. So choose wisely and stay invested for a long period of time without fattening the wallets of your favourite trading house. Instead, make yourself rich the slow and steady way.
ps. For those not familiar to the scene from Star Wars above, see the video below…
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