What Are The Pros And Cons of Day Trading: Is It Worth It in 2024?

Day trading is popular and many are dreaming of striking it rich. The chances of striking it rich should be better than ever before, right? Free commissions, crypto trading, plenty of news, bell, and whistles make sure of that? You can even put up much less money than if you do swing trading or long-term investing. Is it any reality in this? Let’s look at some of the pros and cons of day trading.

The pros of day trading are high turnover of capital, potentially fewer and smaller drawdowns than investing, you can utilize leverage, and you can exploit the law of large numbers to your advantage. Sadly, there are cons of day trading too: you can’t participate in the long-term upward drift in most assets, commissions and slippage can be ruinous, and you need to devote a lot of time (opportunity cost). 

The chances of striking it rich as a day trader are very slim. Most likely, you’ll end up poorer than you started unless you have a clear plan of how you are going about it. You need a defined trading plan, a strong work ethic, a systematic mindset, and you need to devote a lot of time. If you can manage all that you might avoid being among the great majority who lose money day trading:

Why do you want to day trade?

Before you start thinking about day trading you need to ask yourself why you want to day trade in the first place.

When I talk to the publisher about the books I have written, he says people are crazy about day trading. I am also fascinated by this fancy for day trading. Is investing too boring? Do we like to “gamble”? Do we need excitement? Punishment/SM (for those who lose)?

Personally, I like day trading better than investing, even though I do both (but I have scaled down day trading over the last five years). I am certainly not a “gambler” – I consider myself very rational. If I saw a bigger potential in investing for the capital I allocate to day trading, I would certainly switch. Both day trading and investing have their pros and cons. If you are unsure, please read our article called trading or investing – what is best?

However, to help you get started I think anyone considering daytrading should have a look at the pros and cons of day trading underneath:

The pros of day trading:

Let’s start by looking at the pros of day trading:

High turnover of capital

A good day trader is capable of making insane returns on the capital invested (if he or she is good). This requires a high turnover of capital.

How much?

Probably at least once a week your total equity should be turned over. For example, if your capital is one million USD, you’d buy (or sell) at least one million per week. The best traders probably turn over their capital once per day.

Why is high turnover a requirement? Because of the law of large numbers:

The law of big numbers in day trading

If you have a positive expectancy, you would want to turn over your capital as much as you can. This is pretty obvious.

Despite this simple fact, a lot of traders focus on psychology and risk management. Yes, risk management is an important part of trading, but first of all, you need to find a trading edge that has a statistical positive expectancy “naked” before you start thinking about management and any gain by knowing yourself.

However, my experience is that most traders don’t have a positive statistical edge in the first place. No psychological advantage can ever replace that. How can you utilize the law of large numbers if you have no edge?

Day trading involves smaller drawdowns

Drawdowns are what make most traders and investors quit. Seeing your capital shrink by 50% is gut-wrenching, to say the least. My experience is that most people start questioning their strategy even at drawdowns much smaller at 20%. Then you start doing behavioral mistakes.

Even if you have the best strategies and edges you can possibly have, they will not make money all the time. Traders stop trading good strategies because of drawdowns:

Day trading can reduce drawdowns. If you are good and trade your edge(s) by using the law of large numbers, you might have significantly smaller drawdowns.

For example, during the great financial crisis in 2008/09, I had my best period as a day trader. Perhaps counterintuitively, I made most of my money on the long side,

By day trading you have less risk of having adverse news going against you (most news comes outside market hours). This could be an advantage, even though you don’t ride the tailwind from rising asset prices.

Day traders can use leverage

If you have an edge and you are confident you know the risks involved, you would want to use leverage – perhaps even lots of it. Leverage for day trading is basically free. Prop trading offers you some serious leverage if you can prove you are any good.

Day trading offers mental and intellectual challenges

Day trading