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The Difference Between Active Day Trading and Passive Investing:

The terms “trading” and “investing” are often used synonymously, but in practice, active day trading and passive investing are vastly different. The best way to think about it, in my opinion, is to picture short-term approaches like day trading and swing trading on the left side of a spectrum, and longer-term position trading and buy-and-hold investing on the right side.

What is Active Day Trading Explained in Detail

Starting on the left, day trading involves buying and selling positions within the same day based on momentum, breaking news, or some other volatility-producing catalyst. Next is swing trading, which typically involves more flexible entries/exits and longer hold times ranging from a couple days up to several months. Then there is position trading, which involves trying to capture longer term trends ranging from several months to several years. On the far right is long-term investing, which involves building a diversified portfolio with no short-term plans to sell. Generally speaking, these are the four main categories on the trading/investing spectrum.

Individuals operating on the left side of the spectrum are mainly concerned with technical analysis and short-term volatility. But as you move further to the right, fundamental analysis starts to garner much more attention. Day traders, for example, don’t often waste their time performing deep analysis of financial statements since they’re in-and-out of positions within the same day. Long-term investors, however, would prefer companies be structurally sound before putting money into them for the long haul.

What is the Psychology of Day Trading and Why is it So Important?

When it comes to day trading, or any form of trading/investing, there are two aspects of psychology to be concerned with: 1) your own individual mindset, and 2) the psychology of the entire market. Most market newcomers tend to primarily concern themselves with setups and strategies, but lack the appropriate mental framework required to execute on their plans. As a result, they continuously fall victim to irrational tendencies and impulsive behaviors, leading to erratic and overall negative results.

Common trading errors include removing stops to avoid taking losses, adding to losing positions hoping for rebounds, cutting winners short in fear of them turning back negative, failing to take profits in fear of leaving money on the table, revenge trading after losses to get back at the market, strategy-hopping in fear of missing out, and the list goes on-and-on. The reality is that nobody is a natural at trading. Every single person who has experienced long-term success in the market has had to adapt their thoughts, perspectives, and behaviors in order to effectively operate within the market environment. Great traders aren’t born – they’re made.

What is Day Trading Psychology

When you gain a sense of self-awareness and self-control while operating within the market, you start to realize how incredibly emotional and irrational the masses can be. And these types of short-term, volatile reactions are where some day and swing traders find an edge. Take the situation with GameStop (GME) earlier this year as an example. The price ran from around $20 per share to nearly $500 within just a couple weeks due to a massive short squeeze. Then it sank back down to $40 within about the same amount of time. Then it ran right back up again to around $350, and back down again to about $120. The current price today is around $250.

The point that I’m trying to make is that these massive short-term price movements were predominantly due to emotions and hype. This situation had virtually nothing to do with revenues, profits, or any sort of business-related data. It moved because of sentiment and short-squeeze dynamics. This particular situation attracted a lot of attention, but similar types of situations have happened many times in the past. And on lower scales, these types of volatile situations happen nearly every day. Overall, you have to understand your own decision-making process, as well as the psychology of the entire market, in order to achieve consistent success.

What is a Day Trading System and How Do You Create One?

What makes day trading such a challenging undertaking is not just the psychological component mentioned above, but also finding systems that work in particular market environments – and then utilizing the right systems under the right market conditions.

Positive Expectancy

Most people jump into trading and think that becoming insanely profitable is all about finding the “holy grail”. That one indicator, pattern, or setup that will work without fail every single time. But the truth is that no system works the same way in every single type of market. For example, a trending strategy probably won’t work very well in a choppy market environment. But in a trending market, a trending strategy can seem like the answer to everything that you’ve been looking for. But keep in mind that the market will eventually change. It’s a dynamic environment that requires adaptation, evolution, and continuous improvement.

So the key isn’t in pinpointing one particular “holy grail” system, but pairing the right systems with the right market conditions.

Start Thinking in Probabilities in Order to Refine Your Statistical Edge:

The real reason most traders can’t follow their plans, rules, and systems is because they don’t trust their own process. They either don’t have confidence in their systems or trust themselves to follow those systems with discipline, or both. But if you behave erratically and fail to follow your systems, it becomes extremely hard to analyze and refine them. You’re essentially just trading randomly and providing yourself with no legitimate opportunities for improvement on your statistical edge.

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Choosing a strategy and then sticking to it for at least 100 trades is the first step in rewiring your mind to behave according to your plans, as well as thinking in probabilities. These 100 trades can be done risk-free within a market simulator with no real money on the line. The best part of all is that it can provide you with the accurate data required to see if your system actually works, along with opportunities for refinement. This is a fairly simple step that a frighteningly low percentage of traders actually take.

The Goal is to Find Systems With Positive Expectancy That Fit Your Personality and Lifestyle:

The secret to making consistent money in the market is pinpointing systems with positive expectancy. This doesn’t mean that your indicator or setup works every time, but that it has an edge to make you money over a large series of trades. Within any data set, there will undoubtedly be variance. What that means is just because a coin flip has a 50% chance of landing on heads, doesn’t mean it’s impossible to experience five flips or more in a row that land on tails. In fact, if you flipped a coin 100 times in a row right now, you would probably see quite a few streaks of heads and tails. But overall – after 100, 200, or 1,000 flips – the results will be close to 50/50.

How to For the Stock Market - 5 Steps to Consistent Profits

But again, the expectancy of your system can vary based on current market conditions. So always keep in mind the current status of the overall market, or better yet – document it. Make market conditions a part of your trading journal. Over time, you might find that the data suggests you should only trade certain systems in one type of environment while avoiding all of the others. Doing so can potentially lead to you taking less trades, but making more money. This type of data-driven approach is one of the main catalysts for hugely successful, multi-millionaire day traders like Tim Grittani, Steven Dux, and Roland Wolf.

One last thing to keep in mind is that your systems need to fit your personality and lifestyle. Trading strategies aren’t one-size-fits-all. Even traders who seem to have relatively the same approach can have drastically different results. Skill level, experience, capital, specific entries and exits, risk tolerance, and availability during market hours, among other factors, can all vary from trader-to-trader. This is why blindly copying alerts doesn’t work. You have to develop systems that fit you and implement them on your own.

Top 10 Characteristics of Successful Day Traders:

The most successful day traders…

  1. Do not blindly follow alerts. They develop their own rules, plans, and systems – and execute on them with discipline.
  2. Use courses, communities, and subscription services to educate themselves on the “why” and “how” behind good trades.
  3. Know that good trading is not about following their in-the-moment urges. It’s about following their plans.
  4. Acquire a mindset different from the masses that allows them to think probabilistically and behave consistently.
  5. Are constantly searching for opportunities to grow and adapt – new markets, strategies, instruments, time frames, etc.
  6. Closely track their own trade data for potential refinements, as well as historical data for potential new opportunities.
  7. Have a clear understanding that results (money/profits) are merely a byproduct of following the right process over time.
  8. Develop their own trading style that takes lifestyle (schedule/availability) and preferences (risk tolerance/hold time) into account.
  9. Acquire subconscious pattern recognition skills that allow them to quickly spot and execute on their ideal setups.
  10. Avoid devastating losses by implementing sound risk management and mindset management techniques.

Best Free and Premium Day Trading Courses:

#1 Free Course – Trading Success Framework |Enroll Now|

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Top-Rated Day Trading Mentorship and Tools:

In addition to the courses listed above, I’ve listed my top-rated day trading mentorship communities and tools below. These are all platforms that I have personally used in the past – most of which I still use currently.

Developing Skills & Edge – Trade With Profile |Read Full Review|

Mindset Course – 2ndSkies Trading |Read Full Review|

Complete Learning Program – Thomas Kralow |Read Full Review|

Chat Room – Investors Underground |Read Full Review|

Market Simulator – TradingSim |Read Full Review|

Stock Scanner – Trade Ideas |Read Full Review|

Charting Software – TradingView

Stock Newsfeed – Benzinga Pro |Read Full Review|

Several resources that I highly recommend for beginners to start with right off the bat are the free beginners courses offered at 2ndSkies Trading and Investors Underground, TradingSim to build skills and practice strategies in a realistic environment, and The Advanced Traders Mindset Course in order to cultivate the proper mindset for consistent market success.

Conclusion – Is Day Trading a Bad Idea or a Great Opportunity?

It’s true that over 90% of traders fail, but that doesn’t mean that there’s no opportunity for you to succeed. Your ultimate success or failure will be dictated by the way you approach the market. If you enter the trading arena with distorted views and unrealistic expectations, then you will most likely fail. This is what the majority of people do and it always ends poorly – it’s why so many individuals paint trading as risky or a bad idea. But if you approach it appropriately – by educating yourself, finding a statistical edge, and developing the proper mindset – then it can be an extremely rewarding endeavor – both emotionally and financially.

trading mentality quote from the disciplined trader by mark douglas

What many people don’t realize is that active traders play an extremely important role in keeping markets efficient and liquid. But even more than that, becoming a great trader requires you to become a more calm, patient, organized, consistent, disciplined, and objective person. Without adopting these particular character traits, becoming consistently profitable is next to impossible. You need to obtain these characteristics in order to flow with the market instead of constantly fighting it. When it comes down to it, trading is mainly a mental game. It might seem like it’s you against the market, but in most cases it’s just you in a battle against yourself.

Your own mind can be your downfall – or it can be your greatest asset. Successful traders have a level of depth that the masses don’t.

Learn More in the Trading Success Framework Course

Written by Matt Thomas (@MattThomasTP)

Related Pages:

Matt Thomas

Founder of, Creator of the Trading Success Framework Course & Trading Paradigm Skool Community, and Intraday Futures Trader Using Auction Market Theory & Profiling (Volume & Market Profile).


  • Andy says:

    You give a very clear picture of how different the mindset needs to be of a trader vs an investor. As you noted, 90% of traders fail. Do you think that is largely due to them approaching the task with an inappropriate mindset, or is it just that most people aren’t really cut out for day trading? All of us need to invest for retirement unless we are lucky and have someone else who can do it for us. Thanks, Andy

    • Matt Thomas says:

      Hi Andy – great question.

      I definitely think having the wrong mindset is a massive contributing factor to the high short-term trading failure rate.

      I just don’t think most people go into it with serious consideration toward the psychological aspect. The proper mental framework to be effective within the market environment isn’t something we naturally have – it has to be acquired. So in a sense, no one is really cut out for day trading. This isn’t meant to discourage people from trading because it’s possible to develop into a great one, but it takes hard work and persistence – especially from a psychological perspective.

      Much of what it takes to succeed in the market goes against previous conditioning developed from other aspects of life. Attitudes/beliefs about money, risk, loss, and uncertainty, among other things, most likely need to be adjusted in order to achieve a high level of success in the market. Mindset isn’t what most people choose to focus on though – they’d much rather search for “hot picks” and “foolproof systems”. But that’s why such a low percentage of traders succeed.

  • Abel says:

    Thank you for going deep into the concept of day trading and covering the specific things a good day trader might need. I know that one of the most important aspects of short term trading is controlling our urges. We need to stick to our plans. I also appreciate that you included a free day trading course. I will go and check it out now!

    • Matt Thomas says:

      Hi Abel – you’re exactly right. Controlling urges is a huge part of trading consistently and successfully over time. Most people take a surface-level approach to trading. One where they’re just looking for shortcuts – magical indicators, foolproof systems, hot picks, guru alerts, etc. But none of this will produce durable long-term success. The only thing that will is the acquisition of legitimate technical and mental trading skills.

      This isn’t what most people want to hear because there’s a tendency to want the easy way out – the quickest path to riches with the least amount of effort. But the get-rich-quick programs you see in online advertisements are nonsense – it’s just marketing. The reality is that it takes months/years of hard work and persistence to be able to make it to a point where trading can be deemed “easy”. It’s a challenge that most people aren’t willing to go through the proper training phase to achieve.

      The potential rewards and lifestyle that trading gurus tend to focus on in order to sell their courses, programs, and services are indeed possible – don’t get me wrong – but not without a ton of training. The process of becoming a profitable day trader is almost like becoming an elite musician or professional athlete, but most people choose to ignore skill-building or fail to recognize just how critical it is. But if you want to become a great short-term trader, you have to treat it like the skill-based, peak-performance endeavor that it is.

  • Nina says:

    I’ve always wanted to learn about day trading and you have explained it in a very detailed and comprehensive way. I may be a little too old to go crazy on trading at this point in my life, but I think my children will benefit from it. I am forwarding this to my 4 grown children. Thanks so much!

  • Mimie says:

    I liked it when you said “Your own mind can be your downfall – or it can be your greatest asset.” which is so true in every case. I think as a trader you need to put your feelings aside so that you don’t make rash decisions that will lead to your downfall and failure. Revenging the market will only lead to more disappointment. I learned quite a number of things from this. 

    • Matt Thomas says:

      Hi Mimie – thanks for the comment! The truth is that nobody enters the market with the right mindset. Absolutely everybody needs to adapt in one way or another in order to survive – and hopefully thrive. The problem is that most people completely ignore the psychology component and focus entirely on the “exciting” components like setups, strategies, and systems. But the truth is that setups and strategies only get you so far, and then it’s risk and mindset management that make the real difference. Overall, all consistently successful traders have had to adapt their own mental framework to align with market characteristics – avoiding this process will only lead to frustration, pain, and failure.

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