Why Day Trading / Technical Analysis is a Scam And What Your Best Alternate Strategy Is That Can Make You Rich
Approximate Reading Time: 6 Minutes
- Day trading / technical analysis is gambling: intraday prices are random (no chart pattern is a statistically significant winner)
- Trading commissions & fees will be expensive when day trading because brokers expect you to lose money quickly
- Stress of day trading & sitting in front of a computer is detrimental to your health
- Selling options is, by far, your best strategy. I can teach you how to earn ~50% every year – and I make it EASY to learn!
I don’t like to call something a scam; it’ll invite people to attack me, call me stupid & point to superstar day traders who (they claim) earn millions a year.
But, I would never recommend that anyone becomes a day trader or that they trade penny stocks.
And, I do think it’s a scam that’s perpetuated by good marketing.
Remember, there is no easy money! In most instances, making, and keeping, money requires skills and good habits.
I used to day trade a bit.
I remember feeling very good when I’d have a good day, like a temporary euphoria – similar to the feeling of when I win a poker game.
Overall, I lost a lot more than I won while day trading.
Normally, I don’t mind losing, it’s all part of the learning process. But I didn’t feel like I was learning or building anything while day trading.
Back in 2008, I would research and cycle through all of the technical analysis indicators; a few of them seemed to work and I thought that I had found the “holy grail”.
But, none of these indicators stood the test of time.
Whenever I day traded, I never felt comfortable that any indicator or pattern was reliably profitable. Even if I made money on the trade, it could have just been luck.
I just never received confirmation from the market that my strategy was viable.
I’m sure that some of you are reading this and thinking, “Yeah! Your strategy probably sucked, but mine is better!” And to those people, I’d say, “I doubt it. With enough trades and occurences, when you day trade, you will lose money.”
Now, whether you’ll tell your friends, your students or your Instagram followers that you aren’t a profitable trader, that’s up to you. But for those people who make a lot of money by lying to others, I would tell them to be careful how they make their money and to consider toning down their lifestyle.
Living a flashy lifestyle by hurting others will likely make you a miserable person. Yes, you’ll be a rich miserable person. But, I can tell you (mostly from my experience in nightlife) that a lot of the people who hurt others and were greedy ended up in jail, in drug rehab, couldn’t maintain relationships and some even committed suicide.
Anyway, to conclude this digression, I estimate that ~95%+ of day traders fail and I’d estimate that ~100% of those who are super flashy on Instagram, Facebook and YouTube don’t make any money from trading (but they definitely have sex with more women).
Also, just because they don’t make money from trading doesn’t mean they’re not successful. They can make a lot of money from marketing.
If you ever have an opportunity to peel back the layers and review the results of many day traders (or ask them to login live and show you their account’s trading history), it’s likely that almost all of them lose money.
Currently, my trading commissions & fees are about .3% of my account size – yes, 3/10 of 1%! I’m good at managing my expenses. The main reason is that 95% of my trades expire worthless or are closed out for 10 cents or less (I pay no closing fees due to OptionsHouse dime buyback program).
The other 5% of my trades I adjust until they expire or are closed.
The majority of my yearly commissions are paid to adjust these 5% of “bad” trades.
When I was day trading, my fees would run around 8%-9% of my account size; there’s no way to make money day trading when paying these fees.
I don’t think most day traders / penny stock traders would make money with ZERO commissions; humans simply don’t have the psychological makeup to be successful traders. So there’s virtually no way that day traders / penny stock traders can be successful by paying ~8%-9% commissions.
Brokerages charge high fees to penny stock and day traders because they know that most of these traders lose all their money. Brokerages are in business to make money; so they try to capture the maximum amount, as quickly as possible, from the trader’s account before the trader loses it all.
Day trading strategies oftentimes rely upon continuation of trends and trading breakouts. But, to consistently make money, I’ve found that being contrarian yields the highest profit potential.
For example, if the market falls ~5% in 2-3 days, and large companies like Facebook or Amazon fall 7%-8% during that time, then your highest probability trade would be to sell puts and bet that FB and AMZN will not continue to fall.
Add in the fact that volatility would substantially increase while the market falls, and therefore the premium received for selling those puts would increase, and it’s no surprise that selling puts during periods of high volatility is one of our core principles at BestStockStrategy.com.
But with day trading, many patterns will show that FB and AMZN has broken through it’s support lines and that a downward continuation is likely. While betting on the downtrend will be profitable in some scenarios, statistically (with enough trades), it will not be profitable.
I don’t believe any technical analysis indicators are statistically significant, meaning that if you increase the number of trades / occurences, they will not prove to be reliably profitable.
Finally, day trading will not provide you with freedom or flexibility. Instead, you’ll be in front of a computer all day (oftentimes viewing multiple monitors), this is very unhealthy.
And while a photo of you in a suit, staring at 2-3 computer monitors might look cool on Instragram or Facebook, people who’ve done it know how miserable it is and that you’re not being productive or effective.
Yes, maybe there are a few legitimate people who make millions day trading, just like there are a few models who make millions every year – but most of the models I know don’t make much money.
And most of the day traders I know fail.
Sorry for being so blunt. I’m sure that there are things I’ve written in this article that have offended some people or made you angry. If so, I apologize – that’s not my intention at all. My intention is to share my experience to help others.
You have every right to make up your own mind and draw your own conclusion.
My experience has shown that to be successful as a day trader you have to be special and lucky.
Yet to be successful selling options, you can be average; and as long as you don’t get greedy or trade too many contracts, you will consistently make money.
Personally, I’m not special, yet I am very successful selling options.
So while I’m sure there are a lot of brilliant day traders out there who think they have a proprietary system that works, the facts are that day traders, statistically, will almost always fail because it’s gambling and not investing.
Technical Analysis Conclusion
Day traders do not have the odds in their favor. The next time someone tells you that they’re a day trader, look them in the eye and say, “I’m sorry to hear that. Selling options is a more consistently profitable strategy.”
Selling option premium is the absolute best way to consistently make money.
And I can teach you how to earn 50% a year every year.
What’s interesting is that when I make money now, I don’t get happy because I expect to win.
Most day traders rely on technical analysis (charts). I barely ever use charts. The only time I’ll use them is to review a stock’s trading range over the past 6-12 months.
For example, if Facebook is currently trading at $170, I’ll look at where the stock has traded over the past 6 – 12 months. That’s the extent of my chart usage.
Once I know the trading range, I’ll then decide what price FB has to fall to for me to sell a put option, then I’ll select my strike price and decide how much premium I would accept to open the trade.
Why BestStockStrategy.com is the best
I make it very easy. I don’t overwhelm you with unnecessary information or talk down to you.
I can teach you everything in 4-6 weeks.
My goal is for you to learn a skill as quickly and easily as possible so that you feel comfortable using this skill for the rest of your life to create the lifestyle that you desire 🙂
Plus, the results speak for themselves. Review our trading statements. Almost EVERY single one of our trades is a winner.
Learn more about how to learn a skill! Visit BestStockStrategy.com for free videos!