Sorry to reveal this information, but you have been duped. You hear and read about day traders all the time, but what you don’t know is that 99% of day traders fail. Here’s where it gets tricky; it’s not their fault.
Those traders might have put their time in, but they’re up against two impossible forces. One is dark pools, which refers to an exchange where trades can be matched in real time without the size and price of those orders being revealed to the public. In other words, machines are set up so you can’t win. The other force you’re up against is trading fees. These might seem small at first, but when you’re day trading, you’re running dozens to hundreds of orders per day, making it highly unlikely that you can beat the cost of the fees. So, what’s the good news in Coupon Chief?
The good news is that there is a way to make money in the stock market. The biggest secret is that it’s an open-book test. If you read press releases, then you’re doomed to fail. Companies can say whatever they want in a press release. However, if you read their 10-Qs and 10-Ks (both available to the public for free at all times), then you will know exactly what’s going on at that company. By law, a public company must report only factual information to the SEC in these documents. For instance, recent tension in Russia led to Adidas announcing that since the company relied on Russia for much of its revenue, the near future didn’t look bright. Despite this obvious hint, the stock appreciated before the company reported poor earnings and the stock tanked. Anyone who was paying attention by reading the quarterly reports would have been well informed.
If you take this approach, then be sure to buy and hold for weeks, months, or years. Don’t set a time frame. Instead, keep reading the SEC reports until conditions change. That’s when you sell your position and move on to another opportunity. Also, by holding for much longer periods of time, fees aren’t a concern.
In order to make these gains count, you need to be a bottom-line thinker, not someone who drives around in a Jaguar and owns a vacation home in the Hamptons. Your personal finance should be approached the same way a savvy public company approaches their business – it’s all about profits, not revenue.
For example, if Person A generates $100,000 in revenue per year but has $120,000 in expenses, then he might think he’s a big shot, but he’s a financial loser. At the same time, Person B generates $50,000 in revenue per year but has cut expenses so they only total $20,000. Despite the difference in revenue, Person B is wealthier.
Combine savvy long-term stock picking based on factual information with cost-cutting measures and you will find yourself well ahead of the game and comfortable in just a few short years.