The Pitfalls of Day Trading

From the late 1990's to the early 2000's I use to be a "day trader", buying and selling stock market shares for a quick buck. That was back in the day when E*TRADE catered to the day trader with their cheap fees and research information.

Day trading, for those readers unsure of the term, is when a person buys a large amount of stocks shares and then sells them quickly, usually the same day they bought them, hence the name day trader. The day trader is sometimes making only .25 cents a share or more in profit per share. They typically buy 1000 or more shares at a time. If they do this then they would typically make $250 a trade not including the trading fees. Do that about 4 times a day and successful day traders could make at least $1K a day.

Researching your stocks before you buy them is a must but be careful where you get your information from. Yahoo has stock trader message boards that I learned quite a lot from. They can be a wealth of information and miss-information as well. Take everything you read online about stocks and bonds with a grain of salt. You will end up reading a lot of hype about stocks. You will also come across the "pump and dump" scheme.

"Pump and dump" is used by some day traders and even some stock brokers to hike the price up on a stock. They use emails and message boards to release rumors of a company development or deal in the works. They typically already own stock in that company. When people read these rumors they buy the stock. The price of the stock then goes up. When it has gone up to the price that the pump and dumpers want it at they will sell their shares, leaving the rest of the stock holders holding their own shares. The rumors then get proven to be false and the stock price then drops. The pump and dumpers have made their money and have moved on to another stock.

Looking back on my experiences now, I equate day trading to gambling online. The figures I listed above don't always work out. Sure I have made $500 to $1500 a day but I have also lost just as much. My failing came from investing in companies that did not disclose they were on the verge of bankruptcy. I have bought stocks in companies that within hours of the purchase have become delisted from the stock exchange and were now worthless. In the course of my day trading experience I lost about $15K over a 5 year time period.

Do I still participate in the stock market? Yes I do but this time I invest in mutual funds and leave my investments in the funds for longer than 9 months. I occasionally buy a stock that I think might perform well over a long period of time. I no longer buy and sell stocks within the same month. I am in it for the long run now not and not shorting my stocks.