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Stop that (Day) Trade! This is Why Day-Trading May Lose You Money

Day-trading, or the act of jumping in and out of financial assets within the same trading day, is a tough gig.

There are a lot of reasons why day-trading does not work. But, it continues to attract new participants. Famed financial journalist and author Jason Zweig discussed these points on a recent Motley Fool podcast.

Tough bets to make

Here’s what Zweig had to say (emphases mine):

“What I often say is that people are too good at learning lessons. And the lesson that people should have learned after the Internet Bubble burst in early 2000, was that day-trading is a really bad idea.

But people are are too good at learning lessons so they learn an over-precise lesson. And the lesson they learnt [instead] was that day trading internet stocks was a really bad idea.

So, in recent years, we see the same people who day-traded internet stocks going into day-trading foreign currency. Now, why you would think that you would know more about the value of the Yen relative to the Euro, compared to the people who work in the biggest financial firms in the world, is beyond me.

Making that kind of forecast requires unbelievable knowledge and expertise. Most of the professionals who do that for a living, a highly compensated living by the way, aren’t very good at it.”

I think Zweig makes very good arguments here.

Even the professionals aren’t doing a great job on predicting where currencies will trade. In fact, a recent Bloomberg article suggests that foreign currency analysts have been consistently off-the-mark by at least 12 percent on average in predicting where the Yen and Aussie dollar would trade at relative to the US dollar. This performance was measured over the past decade.

Foolish takeaway

As long-term investors, we are fortunate because the act of investing does not require us to stare at computer screens over long periods or catch every minute stock price movement.

What we need instead is something simple – time. For instance, my colleague Chong Ser Jing has shown that the odds of the Straits Times Index (SGX: ^STI) turning in a positive return for an investor increases with the time the investor holds on to it.

The opportunities to do something easier in the financial markets is available. It’s up to you to decide how you’d like to spend your efforts.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.