“It’s more gambling than anything else”

However, while the idea of day trading as a means to make a supplemental income sounds alluring, the shifts and uncertainty of the economy today paint a different picture of the individual day trader than during the height of the pandemic.

“By and large, the answer is not good,” said Senior Financial Advisor David Roche of Brentwood. “It is fine when the markets are strong. But it’s more gambling than anything else.”

Day traders often make many trades in one day, and close out positions in that same day, meaning they sell every share of stock that they owned for the day back into cash to keep their liquidity for the following day of day trading. One can make money in the stock market by buying a particular stock low and selling it high for a profit, or “shorting” a stock by borrowing a stock at a high price and selling it back when the price of a stock goes down. Day traders do this all day from the start of the stock market at 6:30 a.m. to 1 p.m. Pacific Time.

According to James Unno. a local stock market enthusiast, day traders are more successful when they know when to get out of a stock, even when they are in a profiting position, and who know when not to get greedy.

“Day traders utilize even the minute changes in a particular stock, sometimes a matter of cents up or down on a stock price to try and make a profit,” said Unno. “The smartest traders are the ones who know when to cut their losses to get out of a losing stock position, which is the hardest thing to do because most people usually wait too long in a position hoping for the stock price to move back up in profit. I think unless you are fairly knowledgeable on how to read stock graphs and charts, most day traders, in general, lose over time. In day trading, yes, you have an opportunity to make a lot of money quickly, but also have the potential to lose a lot of money fairly quickly as well.”

According to www.daytradereview.com, while 9.6 million people around the world are active traders, many of whom are younger than 35, only 15% of day traders survive longer than three years. Additionally, 97 percent of day traders lose money in the long run, with 80% of day traders losing money within the first year alone. Only the top 1 percent beat the market. According to Gunther Karger, a columnist with American Business City Journals, day trading gained popularity after the deregulation of commissions in the United States in 1975, the advent of electronic trading platforms in the 1990s, and with the stock price volatility during the dot-com bubble.

During the COVID-19 pandemic, many individuals tried day trading due to the lockdown, social distancing, as well as to replace lost income. Companies that profited from the COVID-19 economic shutdown like Amazon.com, due to stores being closed and enabling people to shop online, Netflix due to people staying home to binge watch shows, and Peleton due to the closure of gyms and health clubs. According to Roche, however, the paradigm has shifted as the more aggressive companies are coming back down to earth, while the more “blue chip” companies like energy, oil, gas, and food are coming back and performing stronger. However, soaring inflation over the past year has been causing problems for many worldwide.

“It has taken the wind out of the sails for a lot of investors,” said Roche. “Stocks were down. Bonds were down. Real estate was down. Last year was the last year since 1969 that stocks and bonds were both down simultaneously. It was a rarity. The hope for everyone in 2023 is that inflation gets under control and interest rates stop being raised. That’s the hope across the board in every sector from first time home buyers, to developers, to security investors.”

According to Unno, inflation and the state of the economy don’t affect how one can make money, but they can be a good indicator of the overall direction of the stock market in which inflation usually acts as a negative driving force.

“Just know in general, interest rate increases and inflation are very bad for the stock market,” said Unno. “The Federal Reserve is trying to combat inflation by increasing interest rates, so this is a controlled slowing down of the economy. The danger is increasing the interest rates too high and too fast, which would lead to a further stock market down trend and significant loss of jobs. The worst-case scenario is we go into another recession or even further depression or stagnation.”

Going forward, the general advice amongst financial advisers, stock brokers, and stock market enthusiasts alike all remain similar, reminding individuals to be smart and careful with their money and future, because decisions on investments should always align with goals.

“Personally, I think holding cash or liquidity is the best thing to do in this current environment,” Unno said. “Also, if you are new to investing, right now would actually be an opportune time to slowly dip your feet into the market since so many stock prices have dropped to pre-pandemic levels if you want to buy and hold stocks long-term. Bonds and CDs are also a good place to invest your money currently since interest rates are going up.”

Added Roche, “Make sure you have a long-term plan. Check in with your financial adviser. Make sure you are on track for what your goals are, and not to lose sight of what those long-term goals are.”