Filed Under Beginner Stock Market Investing |
Day Trader Beginner Investing
In the last Stock Market for Beginners Post I discussed the basic buy and hold strategy and introduced the concept of a dividend reinvestment plan. As a beginner investing for the first time I would strongly recommend the latter as your Stock market for Beginners primary means of stock market investing. It will be a good placeholder for your money until you become stronger with the market and can move to something more lucrative like being a day trader or real estate mogul.
A quick recap, a day trader is someone who buys and sells stocks in the span of a single trading day. Meaning that the day trader would ideally buy a stock one day, and have it sold before closing bell that same day and retain a small profit.
I say a small profit because in the long run, small profits equate to HUGE profits for a successful day trader (less than 2% of day traders turn a consistent profit). In other words, a day trader does not hope for a 50% gain in the matter of minutes. It happens, and I have witnessed it with my own eyes, but it is FAR from expected. The sophisticated day trader is not a beginner investing and praying that a profit will emerge. Instead a day trader will buy on an educated guess or stock chart pattern and shoot for a measly 1-2% gain.
Why would someone be happy with only a 1-2% gain per day? Simple actually. That percentage compounds DAILY. Meaning that 1-2% per day gain equates to EXPONENTIAL gains in a year. To demonstrate, assume that one can buy and sell any number of shares instantly. Also assume that one can trade 5 days a week for 52 weeks a year, and see x% gain EVERY single day. That would mean that if x = .1% gain daily, that at the end of ONE year an invest of 10000 would equal:
10000*(1.001^(5*52)) = 12967.61 (or a 29.7% annual gain)
To all you Stock Market for Beginners out there, a 30% annual return is absolutely NOTHING to cough at. But that’s ONLY recognizing a tiny .1% daily return. What if x = .3%?
10000*(1.003^(5*52)) = 21789.26 (or a 118% annual return (more than double))
A tiny .3% daily return could double your money every year? Day trading 40k a year at .3 would mean you could retire!
Well, what if it was .5%?
10000*(1.005^(260)) = 36574.30 (or a 266% annual return (more than triple))
Holy hell, what about a whole 1%?
10000*(1.01^(260)) = 132,909.85 (or a 1229% annual return (more than 10x))
Feeling feint yet? We haven’t even gotten to the 2% yet! So let’s do that one now:
10000*(1.02^(260)) = 1,722,045.64 (or a 17120% annual return (more than 170x!!!))
And that 10k just made you a millionaire! THAT, my Stock Market for Beginners readers is exactly why day trading is so appealing. But as I hope most of you know, something that good is probably not very true. Well, it IS true, just not very easy.
Conclusion
Being a day trader is a pipe dream. Something we should all shoot for numerically, but not expect to reach in any reasonably short amount of time. As a beginner investing in your future, I would strongly advise against day trading unless you are well educated in the market. Reading Stock Market for Beginners will help you get there, but it will definitely only be the starting point.
Obviously there are many more factors that impede those idealogical numbers, but I wanted to show all the Stock Market for Beginners readers out there exactly why day trading is the creme of the crop amongst intelligent investors.
