Top 08 Reasons Most Day Trader Fail
You may have been influenced by many in social media earning huge from day trading, Is it so easy?
No, the fact is, day trading is difficult to profit consistently.
Many studies have shown that the vast majority of day traders, between 80% to 99%, fail to make any significant money.
Only a small fraction, somewhere between 1% to 20% of day traders, manage to generate meaningful profits from day trading.
The odds are stacked heavily against making a living as a day trader. For every one or two successful day traders, there are potentially 99 others who lose money attempting to trade frequently in and out of positions throughout the day.
So, what makes most day traders fail? Read the real reasons.
1. Being a day trader, you don’t understand markets:
Most day traders lack proper understanding and knowledge about trading. You cannot expect to immediately become proficient at a new job or hobby without practice and learning.
Trading requires real education to comprehend how the markets function.
Merely watching videos will not magically transform you into an excellent trader. Practical application is crucial for learning.
Before risking your own money, start with paper trading to familiarize yourself with the markets and the trading platform.
Even after beginning to trade with real money, your education continues as you learn to manage the mental blocks and emotions that arise when real capital is at stake.
If you cannot implement the strategies you mastered during paper trading with real money, take a step back and conduct more testing.
2. Few day traders use quantified strategies and thus fail:
Most day traders fail because they start trading without a trading edge. A trading edge means your trading setup has a higher chance of success, with a win rate above 50% or making more from winning trades than losing ones.
Having a quantified trading edge becomes crucial in day trading due to the significant noise and randomness involved.
Developing a structured trading strategy is essential because trading involves making decisions with financial consequences based on an uncertain future.
Your best approach is to follow a step-by-step process to build a quantified trading strategy separate from discretionary trading.
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This allows you to develop structure and systems in your daily life as a trader, which is paramount for making informed trading decisions.
3. They tend to hop between strategies:
Experienced traders say that consistency and learning is the key. Many day traders have the potential to succeed – they understand the markets, have a proven strategy, and have an edge. However, when their edge stops working, they panic and abandon that strategy, which leads to failure.
Instead of immediately abandoning a proven strategy when it stops working, try to understand the reasons behind it. The market conditions may have changed, or you may have made a few poor trades.
It could also be that your supposed “strategy” was just a streak of good luck. So, take the time and effort to analyze all the different factors and identify what is happening. Then, decide whether to continue with your strategy or adapt it based on your analysis.
4. They don’t track trade metrics
Trading involves tracking metrics just like any other business owner. To improve as a trader, you need to understand your metrics and identify areas where you are struggling.
The best way to do this is by tracking every single trade you make.
Track details like your stop loss level, risk-reward ratio, reasons for entering and exiting trades, your pre-market plan, your actual actions, and the overall outcome of the day.
It is extremely important to understand what is causing you to lose money, where you are making money, and whether you are leaving potential profits on the table.
The only way to learn these things is by diligently tracking, journaling, and analyzing your trades.
5. As a day trader, you need a trading plan to avoid failing:
In day trading, you must have a trading plan. because it requires foresight and strategy. Once you treat day trading as a job, you will realize the importance of having a pre-planned trading plan to avoid common issues faced by new traders, such as not knowing what and where to buy.
Your trading plan should cover every aspect of the trading process. It should specify the market you want to trade, the strategy you will use, the trade management technique, the time frames you will use, position sizing, and clearly defined risk parameters.
Additionally, maintaining a trading journal to record all your trades is essential.
Trading records help debunk beliefs by quantifying your performance, allowing you to learn and adapt. Making good decisions consistently is vital because even small decisions today can compound and make a significant difference years down the line. Improving decision-making is the core of successful trading.
6. Day traders fail because they are not patient:
New traders often lack patience. They want to make profits quickly without taking the time to learn properly. They jump into trading before understanding basic concepts like pullbacks and trends. They do not grasp how markets change.
Many new traders hastily bet their money without knowing the trading process. They wrongly believe that trading is an easily learned skill. They are not true traders, but merely gamblers.
Trading requires more than just hard work. It also needs time, study, and many failed attempts before achieving success.
Even experienced traders continue developing new strategies after learning the basics. Traders must cultivate patience. They cannot expect instant profits.
Proper learning, understanding markets, and persistent practice are essential for becoming a successful trader.
7. Their time horizon is too tight:
Many new traders give themselves only a few months to make consistent profits. This creates a lot of pressure on them. Trading is already a stressful activity, so they should not make it more difficult by having an unrealistic short-term time horizon. They are just starting their trading journey, so they need to ignore that inner voice telling them to be profitable within two years.
Instead, new traders should give themselves more time and space. They should not focus on making money or profits right away. Their focus should be on becoming better traders.
They need to spend time learning about the markets, identifying their trading edge, and understanding what strategies work best for them.
This insight will help them forget about money temporarily and concentrate on honing their trading skills.
8. They have no risk management in place:
Many day traders struggle because they do not have proper risk management strategies in place. They must remember that the market is unpredictable.
Traders cannot control the outcome of a trade or whether the price will go up or down. The only thing they can manage is their risk. To do this, traders need to think about what could happen if the trade goes against them.
Nobody wants to lose money, but losing is an inevitable part of trading. Traders need to be good at accepting losses and deciding how much money they are willing to lose beforehand.
Before entering a trade, they should set a stop-loss level – a predetermined price at which they will exit the trade and accept the loss.
For example, they may choose to limit the potential loss to $2,000 instead of risking $20,000. This allows traders to control their maximum loss, even though they cannot control the market’s direction.
While they cannot predict profits, setting a stop-loss ensures they know the worst-case scenario for any given trade.
Final Words:
Now that you understand the common mistakes made by most day traders, you can work to avoid falling into those major pitfalls yourself.
Use OiGenie – a stock market and option chain analysis with charting platform. It allows you to analyze the markets, identify appropriate price strike levels, and assess risk.
Moreover, OiGenie offers features that will help you follow proper risk management by allowing you to set stop-loss levels and control your maximum potential losses. With OiGenie’s analysis capabilities, you can approach trading in a more disciplined and informed manner.
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