Day-trading isn’t easy and profitable to over 97% of traders. If you’re not Thomas Miller or John Roberson, you shouldn’t ever day trade because of the following reason:
- Tax. Day traders are taxed at normal income tax rates, and are less likely to outperform the market when compared with just holding. Warren Buffett defers income until when he sells his shares and thereafter at the long-term capital gains rate. This is a significantly lesser tax burden than day-trading and earned gains with the standard income tax rate.
- Returns. With taxation aside, day trading can be a problem on a risk-adjusted return basis. It gets worse as time passes because your trading strategy may not perform 5 years from today.
- Liquid stocks. If you trade day-trade the liquid stock market, you along with all the others who trade on a daily basis and the naive traders are likely to be snubbed by the top hedge funds that control more than $40 billion and have a high leverage with massive numbers of quants, technologists and data analysts.
- Illiquid stocks. When you trade in illiquid stocks you’re in the crosshairs of traders and marketmakers who could take your money. The wide bid spreads, the deficiency of liquidity, and the fact that you have less information.
In the end, making profitable day-trades on a consistent level is demanding and the system is stack against you. Not impossible, though.