If you have nerves of steel, a stomach for roller-coasters and the reflexes of a cat, you may want to consider day trading as a profession.
But beware the sales pitch that it's easy money to be made in just a few hours a week while your baby naps, say Ann Logue and Bryan Borzykowski, authors of the newly released Day Trading for Dummies.
The book points out that there are many advantages to day trading if you're well-suited for the thrills of speculation: You love being independent and the flexibility of working from anywhere using the latest technology, and you are an experienced investor who enjoys the markets immensely. You want to eat what you kill; you are decisive and persistent -- oh, and you can afford to lose money.
Yet, for the rest of us (who range from the naive to the experienced-but-risk-averse investor), the book also spells out 10 common mistakes made during day trading:
1. Thinking you will make money.
Turns out, 80 per cent of day traders wash out in the first year. Turning a profit is an exception, though those who win sometimes win big.
2. Starting without a business plan.
Your trading business is a business. Figure out how much money you will need, what equipment (such as at least one 19-inch flat-screen monitor to accommodate all the data you will need to track) and training you will need, and your goals. Otherwise, how will you measure your progress against your expectations?
3. Starting without a trading plan.
What's your strategy? What signals are you watching for? When do you open a position - and when do you close it?
4. Failing to manage risk.
Don't forget to put in stops that will automatically execute buy or sell orders when your securities reach key levels. Otherwise, you may well end up second-guessing your own decisions. "Get too greedy and you're likely to get stupid," Ms. Logue and Mr. Borzykowski say.
5. Not treating it as a job.
This isn't a hobby. Set regular hours - you'll need time to study the markets and figure out how to react to them. Make sure you have enough money. Some brokerages require minimum amounts to trade. Make sure you can sustain several days of losses.
6. Chasing the herd.
If you get in too late, you get crushed. Yet it is hard to watch the market moving away from you. The key is to be early or on time - or to be able to let the occasional big one get away without being destroyed by regret.
7. Losing faith in your trading system.
No trading system works all the time. But if you switch systems all the time, you'll never learn how to properly use any single one. "Anyone who has a magic trading system that works in all markets is retired and living on a beach in Maui," Ms. Logue and Mr. Borzykowski point out.
You make your money on several transactions with small profits when you day trade, but fees and commissions will take a bite out of your gains.
9. Sticking to losing trades.
Fear, doubt, greed and hope cloud your judgment, making you afraid to realize a loss. Staying positive even when your position is sinking doesn't always work.
10. Getting emotionally involved.
The stress can get to you. "The best traders are almost Zen-like in their lack of attachment to the market," the authors say. They also recommend meditation.