Introduction:
Day trading, short-term investing, and long-term investing are all strategies that will allow you to capitalize on the stock market. However, each approach offers its own distinct advantages and disadvantages, which makes it important to understand each to pick the right one for your goals and lifestyle.
Let’s take a look at the pros and cons of day trading vs. long-term investing so you can figure out which one is right for you!
What is day trading?
Essentially, day trading means buying an asset and selling it as quickly as possible to gain a small profit from its fluctuating price over a short period. If you do enough trades in a single day, you might be able to make some money, but at a steep cost: If one trade goes wrong because you missed something, or if your investment idea is particularly volatile that day, you could find yourself on your back foot instead of charging ahead.
And though everyone has the potential to become a successful trader, in theory, not everyone has what it takes to put up with all of that stress—the hours spent staring at tickers; slow execution due to high-frequency trading; management anxiety; potentially sleepless nights spent worrying about losing everything...that's just not for most people.
Who are day traders
You need a trading plan—and you must trade your plan. That means if you don’t have a trading plan that works for you, now is not too soon to develop one. Not having a trading plan is like driving your car into an unfamiliar city without looking at a map or GPS system—and that could get you lost, fast.
When developing your trading business, here are some questions to answer: Where will I get my market information? How many times per week/month/year will I trade? These four areas are basic questions every trader needs to answer if they want to have any level of success in their investment endeavors.
How do you become a successful trader?
Well, there’s no easy answer to that question; however, what we can do is give you some guidance on how to get started on your trading journey. Whether you have $1000 or $10 million in assets, trading is a skill that anyone can learn with time and practice.
And while it’s not an exact science, many professionals suggest using technical analysis as one way to find profitable opportunities in fluctuating markets. Technical analysis is used for forecasting by observing price changes for any asset or market to assess its strength or weakness.
Is there an easier way than using the exchange itself
Some platforms, like eToro, try to simplify trading with copy trading features that let you automatically follow traders who have demonstrated some success (so you don’t have to figure out what makes a good trader).
The downsides of using platforms like these are:
(1) You need a lot more money in your account to make it worthwhile (since they take such big chunks), and
(2) The selection is limited to people trading popular coins only since they want your business.
Tools used by professional traders
Shorting stocks, margin accounts, commodity futures trading, and digital options are just a few of the many tools in a trader’s toolkit. While day traders attempt to make their money by taking advantage of price fluctuations, most stock traders invest in an individual company that they believe will do well over a longer period.
Before investing in any kind of asset class, you should consider your investment goals and timeframe. This is where day trading may have an edge over long-term investing: you can start making money immediately if you execute trades successfully daily.
There are difficulties involved
Unless you have a crystal ball, it’s impossible to tell whether or not your investments will take off—which is why starting a new business is often considered more difficult than long-term investing. With day trading, in particular, there are always difficulties involved:
There are no guarantees that day traders will make money when they execute trades because their investment strategies rely on real-time market data and information that could potentially be inaccurate or delayed. Combine high volatility with an unclear ROI (return on investment) strategy, and it becomes clear why some investors choose long-term investing over day trading.
Do you need education first?
Before you decide whether to trade or invest long-term, you’ll need to evaluate your education level and time commitment to decide which is best for you. If it’s clear that day trading is something that makes sense for your financial situation, then determining whether or not it’s right for you depends on several factors.
Are you able to dedicate many hours each day to watching financial news? Can you take it with money without feeling like it will leave a permanent mark on your quality of life? For example, are there family members who could really use extra cash if something were to happen unexpectedly?
What about those retirement dreams?
Before deciding, take some time to think about your personal priorities because they all come into play when choosing between these two investment strategies.
What are some things you should know before the beginning
Before you get started, there are some things you need to know to avoid making costly mistakes. Ask yourself these questions before taking action:
- What kind of trader are you?
- Are you someone who wants to actively monitor markets every day?
- Do you want a hands-off approach that allows you to invest without having to check in?
- How much time do you have available each day?
- These considerations will help identify what type of trading strategy is best for your needs, helping keep costs low and returns high.
Start slowly so you can learn as you go
A common misconception among people who want to get into day trading is that they should just jump in head first and start raking in money right away. In reality, most day traders fail because they don’t know what they are doing at first.
It’s best to start slowly so you can learn as you go along; otherwise, it’s likely you’ll end up like so many other hopeful investors out there—broke! While learning how to trade isn’t easy, being a fast learner will give you an edge when it comes to honing your skills quickly enough to make money trading stocks.
Conclusion
So which is better, day trading or long-term investing? It depends on your approach to money management. If you’re willing to put in a ton of time and can handle watching your investments daily, then you might want to consider investing in day trading stocks or forex trading as it may very well lead to greater returns over time.
If you aren’t able or willing to do that, then long-term investing might be a better choice for you, since it allows for more room for error than day trading does—though, over time, its high returns will probably lead to less overall profits than day trading would.