1. An introduction

A Controversial Practice

The profit potential of day trading is an oft-debated topic on Wall Street. Internet day-trading scams have lured amateurs by promising enormous returns in a short period of time. Unfortunately, the idea that this kind of trading is some kind of get-rich-quick scheme persists. Some people day-trade without sufficient knowledge. But there are day traders who make a successful living despite—or perhaps because of—the risks.

Many professional money managers and financial advisors shy away from day trading. They argue that, in most cases, the reward does not justify the risk. Conversely, those who do day-trade insist that there are profits to be made. Day trading profitably is possible, but the success rate is inherently lower because it is inherently risky and requires considerable skill. Moreover, economists and financial practitioners alike argue that, over long durations, active trading strategies tend to underperform a more basic passive index strategy, especially after fees and taxes are taken into account.

Day trading is not for everyone and involves significant risks. Moreover, it requires an in-depth understanding of how the markets work and various strategies for profiting in the short term. Though the success stories of those who struck it rich as a day trader often get a lot of media attention, remember that this is not the case for most day traders: Many will fizzle out, and many will just barely stay afloat. Furthermore, don’t underestimate the role that luck and good timing play—though skill is certainly an element, a stroke of bad luck can sink even the most experienced day trader.

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