Tips for day traders

July 8, 2020  | By Kevin Smith

There is more energy around day trading than I have seen in years. Maybe it’s because of quarantine boredom. Maybe it’s because tech stocks have been soaring and FOMO (fear of missing out). Maybe marketing genius Dave Portnoy is responsible for all of this. I don’t know! Before you login to your Robinhood account, here are some friendly tips for anyone compelled to venture into stock picking.

For the day trader who just wants to have a little fun and maybe get lucky.

  • Only bet as much as you are willing to lose. Make sure your family is OK with that amount first.
  • Your results will be a function of luck, not skill. Our brains fight this reality, but let go of the idea that you might have great instincts. Enjoy the winners and don’t sweat the losers.
  • If you have some success, move the gains into a more responsible, less sexy strategy (a broad market index, blah). You will not want to do this, but do it anyway.
  • Since you are just having fun and probably don’t have time or interest in lots of research and systems, just go with your gut and remember the first bullet point.

For the day trader who intends to treat it like a business and build wealth.

  • This is going to take a lot of time, so consider if you should spend that time on your highest value talents in some other realm.
  • The odds are stacked against you. Many have tried and most have failed. No strategy works well every year. This is really hard!
  • If you still want to do this, articulate your strategy out loud. How persuasive is your pitch? Find a thoughtful friend to ask you questions.
  • Build a system to execute your strategy with rules for buying and selling. If your strategy is to go with your gut instinct, skip this step.
    • Day trader with no system: “Tesla just went up 200%… I can’t sell now!”
    • Day trader with a system: “I own no more than 10% in any one stock, so I sold Tesla to get back to 10%”
  • Decide in advance how long you are willing to under-perform before changing your strategy. Recently outperforming strategies have previously lagged for 10+ years. Remember the ‘lost decade’ of 2000 – 2009? The S&P 500 had a negative compound annual return.
  • Measure your results relative to the most compelling boring strategy. (Nobody actually does this. It is kind of hard to do.)
Posted in: Investing
Kevin X. Smith, CFA
512.467.2003   |  [email protected]

Kevin is on a mission to find better ways to explain complex concepts in increasingly simple and meaningful demonstrations. Everyone has a different level of interest in learning about investing – ranging from “I just want to know that I…Read More




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