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’ve listed some disadvantages you might consider when approaching daytrading.

I. The Quick-Buck-Mentality

There are scalpers in Index Futures, there are HFT’s and arbitrager. I’m not one of them. My edge requires me to hold my trades a bit longer than just a few seconds.

It’s hard to let a trade run in daytrading, because you’re actively watching the trade. Also, when you’re not positioned, every tick can convince you to make another “quick buck”. Because we as humans tend to react defensive in profit and more risk-taking in loss, it’s hard for our brain to resist closing a trade too early or being more careful about risk deployment. The disadvantage is that you’re constantly bombarded with new price reactions during the day and it can be hard to resist the temptations.

II. Confusing and fast

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. Sometimes, nothing works as expected, it’s chaotic and hard to make sense of. On top of that, 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.

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 feasible.

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. Six 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. Other proefessions are easier to master, other forms of trading aren’t faster to learn, but certainly daytrading is one of the most difficult things to learn.

VI. Time and boredom

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. However, 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 lose a bit and on some days you’re not doing anything.

VII. Overtrading

It’s not that short-term trading is for the unpatient people. 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.

VIII. Leverage

You have to use leverage. Basically, I’m always hunting for at least 20+ basis points. I need to use 1:5, up to 1:20 leverage in order to profit from these movements. That means as a daytrader, trading for these small %-gains of the underlying, you have to find a broker that offers you this kind of exposure.

CFD’s, which are similar to bucket shops during the time of Livermoore, 1910, are good for providing leverage for smaller accounts, Futures are well suited for bigger accounts. The thing is, that you’re dependant on these brokers, and some of them have too high commissions or unfair order execution. And you never know if law and regualtion 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. On top of that, daytrading 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 day in and day out? With the effect of compounding, huge gains can be made, that elsewhere are not possible.

It is up to you if you master the dangers of daytrading or not. All the pitfalls can be made conscious and the following list has some tips on how 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

Daytrading, Leverage, Overtrading, Screentime Day Trading, Trading Edge

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Who I am

My name is Niclas, I day trade futures since 6 years.

Leveraged products offer a high risk exposure and 95% of people don't understand the real risks in trading them.

I teach traders how to understand risk on a professional level. Moreover, I created the Risk Simulator to give the trader community a tool, that is useful for anyone who trades a trading system.

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