8 Disadvantages of Daytrading

Closing trades within a day doesn't only have advantages. In fact, I personally struggled with daytrading many years before really embracing it.

I. The Quick-Buck-Mentality

There are scalpers in Index Futures, there are HFT's and Arbitrageur-Trader. I'm not one of them. My edge requires me to hold my trades a bit longer than just a few seconds. Losing trades can be realised in seconds, even winning ones can be sometimes.

Every tick will scream to you to make another "quick buck" and in every winning trade it's hard to let the trade run, because you're actively watching the trade. People tend to react defensive in profit and risk-taking in loss, this tendency is dangerous if you want to mathematically make more winning trades and better risk to reward trades.

The active market can be deceiving, if you're not completely focused on not getting deceived from your mind and the market.

II. Daytrading is Confusing

If you don't know where to focus, daytrading can be very confusing. Level-2, tickcharts, the orderflow, price reactions where you lose your shirt are all part of daytrading. Nothing works as expected, it's chaotic and hard to make sense of. It's also very fast. If you don't love making fast decisions, it won't be easy for you to make it in daytrading.

III. Slippage

You have to deal with it. No daytrader in the world never had the pleasure to receive huge slippage. It feels unfair, sometimes it throws you out of your inner discipline composure. I had days, where bitterness about unfair slippage really got me into revenge trading. You have to really stay super calm and don't overreact when the market doesn't give you the entry or exit price you desire.

IV. Endurance

You're human and can't sit on the screen all day long, watching every tick or waiting the whole day for signals. Trading is a high-performance sport and physical health determines your concentration endurance. Daytrading is not something for weak bodies. For some people watching the tape and charts many hours in a row just isn't the fun they want. You really have to love watching the market tick by tick or minute for minute to be a daytrader.

V. Screentime

Daytrading needs a lot of experience. You can't just jump into it and be profitable. If you don't have a professional mentor and jump into daytrading, your pockets will empty as fast as you could never imagine. 6 months of mentor guided practice or 3 years of trial and error is the minimum to learn the lessons in daytrading.

You just have to go through this stage, there's no way around it. It is a disadvantage because other proefessions are easier to master, other forms of trading aren't faster to learn, but certainly daytrading is one of the most brutal things to learn.

VI. Time

I personally trade only 2 hours per day. Of course, I choose the most active time of the day, which has statistically the largest movements.

But some days are just scraggy and utterly boring. You sit 2 hours, waiting for the action, nothing happens. Only to watch the market exploding like a rocket after you leave the computer. This can cause frustration, but that's just how it is. It's a game of maths, some sessions you win, some sessions you do nothing but watch. 

VII. Patience

It's not that short term positions are for the unpatient. You have to be as patient as a long term invoster. The tick-to-tick action during the day can lure you into overtrading very quickly. One of the heaviest losing days I had was when I got a bad emotional state and just wanted to trade to feel better. Revenge, nonsense and overtrading was the result, which can cut very deep in your account. A single day of losing your patience can cost you months of profits. You need super patience, and a strong emotional composure to be able to survive daytrading. 

VIII. Leverage

You have to use leverage. Basically I'm always hunting for at least 20 basis points (one is 0.01% of the underlying). I need to use 1:5, up to 1:20 leverage. So as a daytrader, trading for these small % gains of the underlying, you have to find a broker that offers you this kind of leverage. CFD's, which are similar to bucket shops during the time of Livermore, 1910, are good for providing leverage for small accounts. Futures for bigger accounts.

However, you're dependent on these brokers, and some of them have too high commissions and unfair order execution. And you never know if law and regulation with these brokers stays the same in the future.

Nothing has only advantages. If you want to become a daytrader, you have to think twice. Is it really for you? The disadvantages can become advantages if mastered. For me the beautiful thing about daytrading is the independence of the overall market direction. It allows you to take amazing opportunities, almost every day, 1-3 in my case. Where else can you rinse and repeat mathematical chances to win a buck 50% and make more than 1:1 risk:reward? With the compounding effect, huge gains can be made, that elsewhere are not possible. 

It is up to you if you master the dangers of it or not. 

All the pitfalls can be made conscious and the following list will get you out of them in order to deal with the disadvantages of daytrading:

  • The tendency to make a quick buck must be overcome

  • Confusion must be worked against with clarity and focus on the important things

  • Slippage can cause anger and you have to be cool even if there are unfair executions

  • Your body's endurance can't be ignored

  • Take your time to practice and find a mentor, don't overestimate your skill in the beginning

  • Don't get burned out by sitting 8 hours on the trading screen, 2-5 hours are enough (depending on your condition)

  • Don't expect to be profitable every trading session, patience is always important

  • You have to get used to trading with leverage


PS: If you still want to try daytrading, have a look at my courses.

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