Daytraders world-wide all face the same problems when it comes to daytrading. It doesn't matter whether they are daytrading stocks, etfs, options or futures. The problem facing all daytraders is simple: compressed time.
For most investors, time is not an enemy. Investors have the luxury of spending time researching potential trades thoroughly. They can study daily stock charts and investigate sector performance. They can read analyst recommendations and evaluate management effectiveness. Their investment decision may take an hour or two, or even a week. There is just no rush.
Enter the daytrader who is trading options. Studying sector performance, analyst recommendations or management effectiveness is not an option. Portfolio decisions must be made within a few seconds, not a few hours or days. The pressure is on, considering that these are decisions about always about money.
Lets compare this for instance, to buying a car. Imagine buying a car without doing research, no comparing prices, just walk into the dealership and plunk down your hard earned cash. The only information you have about the car is the test drive you took a few minutes earlier. Feel good about buying the car?
One of the reasons so many daytraders fail is that they cannot make decisions about investing money quickly without falling prey to their emotions, fear and greed. They are unable to remain calm and disciplined throughout their trading day.
Some daytraders simply can't pull the trigger for fear of losing money. By the time they do enter a trade, the chart setups have long since passed them by, resulting in a loss, and a self-fulfilling prophecy that no, they cannot master daytrading.
Other traders can't determine when to exit. Remaining in positions far too long, overcome by greed, they try to get every last bit of profit, only to watch the trade turn against them at the very end. Or worse, they find themselves stuck in a losing trade and freeze, unable to take a small loss by exiting quickly. Instead, they end up losing big because the market never does return in their direction.
Daytraders live and die by their ability to make quick decisions. Daytrading is not for everyone. This is why it is so essential to develop option trading strategies and have the "sticktoitness" to invest with discipline, following the strategy you have developed, buying and selling when appropriate according to the strategy. And most important, understanding when there simply is no trade to take and you must sit on your hands.
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