The Downside of Day Trading Chat Rooms - dummies

The Downside of Day Trading Chat Rooms

Spend any time on the Internet researching day trading and you’ll come across the chat rooms and message boards that some traders use to exchange information. Or at least you’ll come across the chat rooms and message boards that purport to be used by traders to exchange information.

Chat rooms were quite the thing in the first big wave of day trading in the late 1990s. They don’t have quite the influence that they once did, but some day traders still rely on them. Some chat rooms are excellent, helping people learn to trade and offering good perspectives on market action. Others are, at best, a distraction.

The Internet is a wonderful thing, enabling people to trade sophisticated financial instruments in real time from the comfort of home. But it has its limitations, and online interaction with other traders can actually add to the stress of day trading. Tread carefully.

Group think for day traders?

Many day traders turn to chat rooms for the camaraderie and support they offer. Find other people who are going through the same things that you are is so great! These folks understand what’s happening!

Or do they? A very strong argument could be made that traders who really know what they’re doing don’t want anyone else to know who they are or what their plan is. Meanwhile, even those day traders who make money have trouble making enough money to stick to the business for a long time.

In addition, the people in a chat room may get so agreeable that they start reinforcing bad advice. Instead of getting support to help you through a rough time, you get dragged down.

In general, a message board that charges a subscription fee is likely to be of better quality than one that’s free, just because the fee wards off the people who aren’t serious. But no matter what you pay, spend some time lurking (watching the comments without making any yourself).

Proprietors of good message boards usually offer temporary access to prospective subscribers to help them evaluate the service. Check to see how people treat each other, what experiences they have, and how their trading systems match yours. And limit your time and watch your reactions to people’s postings.

Anger and successful day trading don’t mix

From the very early days of newsgroups and Internet Relay Chat, people exchanging ideas on the Internet have managed to misunderstand each other and blow small things out of proportion. That’s all well and good if you’re talking about the latest season of American Idol, but it’s not so good if you’re day trading.

The market is a tough enough evaluator of your performance. You don’t need to waste time, energy, and confidence on someone who, intentionally or not, makes a nasty comment on a message board.

At a minimum, try to limit your message board activities to market hours. And if you’re one of those people who is quick to anger, avoiding online discussions with other day traders all together may be best.

Some use chat rooms to manipulate stock performance

Now, here’s one other nasty truth about day trader chat rooms: Sometimes the people posting are trying to manipulate the market and sabotage other traders. They plant false and misleading information, seek to undermine others’ confidence, and otherwise try to get an edge by bringing others down. The information you get in a chat room may not have much value at all.