why is day trading risky?

Question

why is day trading risky? does trading a few times a week using the same idea as day trading carry the same risk? can someone under the age of 18 legally trade on the market?

Answer 1

Any trading has inherent risks, as the value of the underlying security could be wiped out quickly. Day trading has gotten a reputation for being more risky because you are often trading based on very short term changes in price, which are often triggered by some event. Because there is no way to determine where the price will stabilize after the event, it is very easy to mis-read the technicals on the chart and figure that a stock will continue to go higher (or lower, if you are selling short), when in fact the stock has overshot its stable price which it will revert to shortly after you buy it. It's easy to make a lot of money quick in day trading, if you are good AND lucky, but if you miss one of those two traits (or both), you could lose a lot as well. Also, the trading fees will eat into your profits or add to your losses - the more you trade in small quatities, you less your chance for success. The best approach for long term success in the market is buy-and-hold, diversification, and appropriate asset allocation. Chances are you won't make a mint in a few hours or days, but you won't lose your shirt either.

Answer 2

If all you're doing is randomly buying and selling, then it doesn't matter and your chances of success are probably equally likely. That said, many people would argue that long term trading involves figuring out strategies and researching a company. If it does indeed involve strategy and research then it may increase your chances of earning a better return; at the very least a more predictable return. This is argued pretty heavily because many economic statisticians claim that the stock market is inherently unpredictable. I don't think that's actually true. There are just too many predictors of the financial stability of a company, and even if that doesn't actually play into the price of a stock, just other people thinking it does will cause the stock price to be effected by such financial indicators. In the very short term there are no predictable signs we can look a it; at least none that have been commonly confirmed. It's possible that a few people have indeed figured out a strategy but not likely. In the short term, the stock market is so volatile that luck statistically has to play a much bigger role. If luck plays a bigger role that means you're throwing the dice more often and that means... it's more risky. That's not to say you shouldn't give it a shot. You're more than welcome to show the world that it makes no difference -- it's your money.

Answer 3

I don't think you can trade when you are under 18. The problem with daytrading is that you pay a lot in commissions. This is why the brokerage houses are always hyping daytrading. I think the best way to invest is once you decide on an investment, you should give it a few months to make a move up or down. You should frequently re-evaluate whether the stock is still a good investment.

You might want to take a look at what the best investors are buying and selling and why at http://www.top10traders.com - this is a free site that lets you create a portfolio of stocks with $100,000 in "play" money. Each day the site ranks the best performing portfolios, so you can see how your picks perform compared to other investors. You can also read posts on investing from the best traders, as well as share your own investing ideas. There is also a charting feature , so you can see how your portfolio performs compared to the S&P 500.

Here are this month's best traders:

http://www.top10traders.com/Top10Standings.aspx

Hope this helps.

Answer 4

You can trade on the market I've been doing since a younger age then 18. So I'm assuming it's legal i ran into no problems. Day trading is highly speculative because no one can know the short term movements of the market. In the short run stock moves are dominated by fear and greed. If you want to trade in the market and not just buy and hold, i recommend reading books on the different investment styles. I like contrarian trading where I look for underlying value after temporary bad news has deflated the stock price. Other people try to use technical analysis to time the money but personally i have only lost money trying this strategy. My best advice is to get to know a strategy well and find a niche.

Answer 5

Any speculative investment is risky. Day-trading is just as risky as swing, position and long-term trading.

The risk associated with day-trading is exacerbated by the lack of education with which traders come to the market. Since you're in control of executing your trades, you now become direct competitors with pit-traders. If I were to make an analogy, that's like putting a high school freshman in the UFC ring with Chuck Liddell: the freshman might land some blows, but ultimately will be knocked out.

If you're considering day-trading, you need to have a firm grasp of what your trading, the mechanics of the markets, trading strategies and a trading plan. In fact, this is recommended for all traders, be they day, swing or position traders.

Answer 6

Under 18 can not legally trade.

Stocks can change value everyday. If your intention is to buy a stock for a short period of time, there is more risk than holding it for longer than 1 year.

Most day traders have already learned that mutual funds will perform better over long periods of time than day trading. But day trading is like Vegas, the only people that are talking are the ones that are winning. There are thousands of new traders every day that learn, the hard way, that you need a lot of knowledge and research to pick good stocks.

Answer 7

Risk is usually depends on your skills and daytrading usally trades large amount of money expecting to profit on day momentum. So if you don't know what you're doing you can loose a lot or everything in few minutes.

Global Investors Community
http://www.moneyhowto.com

Answer 8

Somerone under 18 cannot trade without a adults nae on the account.

Day trading is risks because the transaction costs are high; ever time you trade and pay fees. The tax rate is higher. And imperical studies show that even ignoring the costs and taxes of tax trading; it does not outperform market indices.

And do not even try day trqding with mutual funds, with the new SEC rule 22c-2, you will regret it.

Answer 9

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Answer 10

Because you need to invest considerable sums of money to make profits, to, at least cover, the broker' commision, since the profits are too small, and the trades too frequent.

It's not advised to start trading with large sums of money.
Start with small sums, and if you have gains, then gradually increase.