Making quick money from trading is the most popular, yet data suggests that most traders lose money. 70% of traders don’t last beyond the first year and 95% stop trading by the third year.
Is trading a full-time profession? Is it not for everyone? Mainly, is it suitable for you to make money? Let’s find out.
Estimated read time: 4 minutes and 6 seconds
Buckle up, here we go!
What is trading?
Trading is buying and selling stocks, bonds, currencies, and commodities with a price and time frame in mind. It is the opposite of investing, where we use a buy-and-hold strategy.
Traders use different methods, like technical analysis, to decide whether to buy or sell. They analyse the charts built from the historical data of a stock price. By analysing the trend, volume, etc. they try to predict the price trend of a stock. Many decide only based on a rumour or stock tips.
Different styles of trading
There are four primary trading styles: scalping, day trading, swing trading, and position trading. The differences among the styles are based on the lengths of time that trades are held.
1. Day Trading
Day trading (intraday trading) is one of the most common types of trading in the stock market. Day traders close the trade on the same day.
Scalping is a subset of intraday trading. Scalping trades are held for only a few seconds, or at most a few minutes. It is a rapid trading style best suited to traders who can make instant decisions.
3. Swing Trading
Swing trades are held for a few days. Swing trading is suitable for people with the patience to wait for a trade, as they almost always hold their trades overnight.
4. Position Trading
Position trading is the longest-term trading of all. Position trades are held from a few days to several years. Traders identify a stock’s momentum before buying stocks. This is a long-term trading style for those with patience and confidence in their choices.
Traders choose their trading style based on their skills, patience, experience, etc.
Is trading a full-time profession?
Yes, to be a successful trader, you need a lot of skills like patience, risk-taking ability, quick thinking, analytics, etc. You need to learn technical analysis, fundamental analysis, businesses, etc. If anyone says you can earn money without these skills, they are lying.
Most people enter trading to make a quick buck in their free time. Slowly, they realise it is easy to start but tough to stay in it while being a successful trader.
That is why 70% of traders don’t last beyond the first year. And 95% of traders stop trading by the third year.
Mistakes most traders make
- No strategy
- No emotional discipline
- Not learning from mistakes
- Trading over-hyped stocks
- Averaging on losing position
- Following the herd
Also, did you know that Nithin Kamath, the CEO of Zerodha – an online stock broker said that just 1% of active traders make more than bank fixed deposits over 3 years timeframe.
He says active trading is like running a business with only a small per cent of traders succeeding.
Most people don’t think of trading as a business when they start it. They hear some of their friends making money quickly through random tips, and they want to earn too.
Things to beware of before trading
1. Fake Screenshots
Don’t tell me you didn’t see any of your friend sharing screenshots of their trades?
Did you know most of the trade screenshots shared by some traders in telegram or WhatsApp groups are fake? Yes. They can easily alter the trade numbers and screenshot them to share them with you. Check it out here.
So don’t fall for these scams. Do your own research.
2. Brokers promote trading
Recently one of my friends asked me if trading is so hard, why do broker companies promote it so much? You would have seen ads showing fast trading with a low brokerage, right?
For starters, broker companies like Zerodha, Upstox, Groww, Motilal Oswal, and others are the middlemen. They work between you and the stock exchanges like NSE and BSE. Only because of them, the investing and trading process is so smooth.
And for that service, they charge you a brokerage for every transaction. Every time you buy or sell a stock, you pay them a fee.
So if everyone becomes a long-term investor who makes a transaction once in a while, they wouldn’t be able to earn much, right? Whereas a day trader makes a lot of transactions every trading day. So they earn more money.
Even if you lose, they make money. That’s a solid business. Therefore, brokers promote trading to earn more revenue. So don’t fall for these promotions.
3. Wrong earnings calculation
For every trade, you pay brokerage, STT and other charges. You also have to pay a short-term capital gain tax of 15% if you make any profit.
While calculating their earnings, most newbie traders miss out on these charges. They don’t understand that these minor charges increase their overall cost and decrease their overall return on investments.
After a proper calculation of earnings, you might find that most traders lost their money or their return on investment was less than the FD interest rate.
So think about it. We already know that trading is a full-time profession. And it is not everyone’s cup of tea. But do you have enough time to learn the skills required for trading? Do you have a patience level and risk-taking ability? Do you like to work in a high-stress environment?
If yes, you can obviously try it.
After doing all this, maybe you can use 2 to 5% of your portfolio to try trading in stocks or crypto to learn about it and earn some profits.
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