Six Hidden Benefits of Day Trading

November 6th, 2007

I started day trading several months ago after TraderMike’s careful switch from swing trading.  In fact, I sat with Mike one day when he was trading.  I’ve been day trading ever since.

Even when I had been day trading a few weeks and felt like I was in a nice routine, it still didn’t dawn on me until later just how many benefits there are to day trading (that is, being flat at the beginning and end of every trading day).  Like many people, I thought day trading was way too risky and there was no way to make money doing it.  (In fact, you’d be surprised just how many people continue to tell me that – I just have to laugh.)

Some of these benefits will be obvious to a lot of you, but some might not.

  1. You’re 100% Cash at the Beginning and End of Every Day!
    What a feeling!  It’s easy to sleep well at night when you’re in 100% cash.  Even though this is often touted as a good reason to day trade, you still won’t appreciate it until you experience it.  Imagine waking up in the morning and something comes up that will keep you away from the markets that day (sickness, errands, whatever).  If you’re swing trading, being away from the markets will take its toll – it will always be in the back of your mind.  If you’re day trading, you’re sitting in cash so just take a day off.
  2. You’ll Have Twice as Much Buying Power
    Once you refine your system, this is a big benefit.  You’ll be able to trade more opportunities because you’ll have 4 times your account equity in intraday buying power.  This startles a lot of newcomers, but if you have a handle on your risk this leverage is very valuable.
  3. You Actually Earn Interest on your Overnight Cash Balance
    This one was very surprising to me.  One of the reasons most non-day traders shy away from using margin is because you actually have to PAY interest when you use it.  Most brokers leave your cash account in an interest bearing account, so when you have cash in it you’ll actually be making money.  Here’s the important point: interest is paid on the overnight cash balance, so because you’re 100% cash you’ll be earning interest just as if you had your money in a savings account.  Last I checked my CyberTrader account earned 5% interest or so.  This is like earning the better part of 1R each month for doing nothing.
  4. You’ll Gather a Statistically Meaningful Sample Size Far More Quickly
    Because you’ll have more opportunities to trade, you’ll gather a much larger sample size much more quickly.  This is vitally important for good trading.  Let’s say you make 30 trades in a month.  That’s a decent sample size to begin delving into and to start learning from.  If you’re trading on a longer time frame, it could take you much longer to make 30 trades so it will take far longer to learn how your system really works.
  5. You Can Completely Ignore the News
    The vast majority of price affecting news like earnings reports is released after market hours.  You don’t have to worry about holding overnight when a company is releasing earnings or when, let’s say, the FBI raids a company’s headquarters (d’oh!).  You don’t need to worry about how you’re going to react to the news – you can just let other people worry about the news and trade their reactions.
  6. Day Trading Can Actually Be Less Risky
    Because you’ll be avoiding those overnight gaps, with proper money management you can really have better control of your risk.  Losses of greater than 2R are fairly common when holding overnight, but they are quite rare when day trading.

Day trading is not for everyone, but there are some not-so-obvious benefits that make it very enticing and perfect for a lot of traders.  Are there other benefits that I’ve forgotten?


  1. Trader Mike Said,

    November 6, 2007 @ 7:15 am

    You know I agree with this list but I’d also like to see what you think the disadvantages of day trading are as compared to swing trading. The biggest ones in my mind is missing out on gaps in your favor and periods when stocks just drift higher day after day.

  2. Dave Said,

    November 6, 2007 @ 7:25 am

    I’ll have to think hard about the disadvantages. 😉 Let me think about it and I’ll write another post.

    Thanks for the comment.

  3. overnight cash » Blog Archive » Six Hidden Benefits of Day Trading Said,

    November 6, 2007 @ 10:19 pm

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  4. Bill Said,

    November 7, 2007 @ 8:02 pm

    Stocks actually gap up? Dang, I’ve gotta find those. Sitting on RIMM and AAPL for swing trades. Checked AH and found they fell (more like crashed and burned)in sympathy to CSCO’s evening trades.

    Yeh, gotta find a few stocks that gap up. Naw, I’d be better off going to cash every night.

    Someday I’ll learn.


  5. Tom Said,

    November 8, 2007 @ 12:09 am

    Day trading also offers some excellent tax benefits if you qualify under the IRS rules!

    The greatest challenge for me in day trading is staying 100% focused and alert the entire trading day (I am on the west coast) and managing the psychological aspects of rapid paced trading.

    I only trade ETF’s so I have less risk (but less upside too). I trade the major market indexes/sectors/countries/commodities long and short using a simple EMA crossover approach. This has been very effective lately with all the volatility. I like keeping it simple and focusing on only a small basket of highly liquid, low bid-ask spread ETFs every day.

  6. Rick Said,

    November 10, 2007 @ 7:21 pm

    I’m on the west coast also and it is often hard to be focused at 6:30 in the morning. But following Trader Mike’s lead I don’t usually actually trade until 10:15-10:30EST.

    I’ve been looking at ETFs recently. I like how linearly they move when the market is in a clear trend. Can’t you avoid having to go short yourself by trading a shorting ETF like QID?

  7. Rick Said,

    November 12, 2007 @ 8:31 am

    I’ll answer my own question–not all sectors have shorting ETFs and Proshares Trust seems to be the only company offering them.

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  10. Free Forex Strategies Said,

    November 17, 2007 @ 1:43 pm

    The biggest benefit of day trading for me is being able to sleep at night without worrying about any overnight positions. Every day is a new day and a new opportunity and come the close of play I will have no open positions and can chill out.

  11. Tom Said,

    November 21, 2007 @ 8:26 am

    Another benefit to day trading is that you don’t have any broker risk. Meaning, if your broker’s platform fails for whatever reason (or trading volumes spike due to a panic) and you can’t get trade your positions you are at severe risk. Most notably in August during the big sell off Schwab’s trading via the web (shut down almost the entire day due to “server issues”!!! Also, their phone lines were jammed so you could not even get through. I think some people don’t realize the size of this risk. I use Interactive Brokers who have been for the most part reliable, but even they have problems. Yesterday for example they could not post trading volumes for the first 20minutes of the day.

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