10 Reasons Most Day Traders Fail


You can make a significant amount of income through day trading, though the price chart can be deceiving, and you could still lose a ton of money even with big moves. The odds of winning a trade to losing a trade are 1:1; hence there should be an equal number of losers to winners, but this is not the case. Over ninety percent of day traders make significant losses, so what are the reasons for their failure?

The reason most inexperienced day traders fail is because they go into the trade without substantial knowledge of the market. They also over-invest and trade without making the correct analysis of changing market patterns. Day traders are their own worst enemies; they are prone to making mistakes.

The rest of this article will give a detailed explanation of why many inexperienced day traders fail and the strategies they can use to make money through day trading.

IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!

10 Reasons Most Inexperienced Day Traders Fail

Lack of a Trading Plan

Day trading is a venture that requires you to plan for the long-term. Your action plan should include what to trade and when to trade. Failure to do so will frequently face disappointments. You will have to change your strategy, methodology, and the market now and then, lowering your performance.

A trading plan will help you know the different stocks, marketing timeframes, and your trading concept. It’s pure gambling when you trade without a trading plan based on emotions and gut feelings.

Indiscipline

Being undisciplined is among the most common reasons why inexperienced day traders fail. Most of the time, traders are tempted to ditch their trading strategy and take additional trades or skip some because of their belief about the market conditions and location. When you’re in a drawdown, this can be a difficult struggle. However, straying away from your proven trading framework will, in most cases, lead to failure.

Crippled Decision-Making

Trading is not always easy, especially for beginners. When you face challenges, you will want to gain knowledge on when to buy/sell, price indicators to know when prices are overbought, and how to analyze market patterns.

Once you read many books, attend various trading courses and forums, your analysis will become paralyzed due to so much information coming in at once. While a lot of information can improve your trading strategy, it can also cripple your decision-making process.

Ignoring Changes in the Market

While a good trading strategy is essential, it can’t survive forever. With markets changing regularly, you have to abandon old concepts and techniques that are no longer in sync. Ignoring these changes will cause you to experience losses in the long run. To cut your losses, you need to switch strategies and identify areas that bring about the failure by logging your trades or keeping a journal.

Unrealistic Goals

It is common for newbies to search all over the internet about day trading and listen to gurus who tell their stories about how they have made a fortune from it. Tempting as it may be to fall for these statements, they can be misleading. 

Achieving returns of over seven hundred or one thousand percent annually and consistently is not entirely possible while achieving it a couple of times would require a lot of skill and knowledge.

Falling for these statements could lead to failure by prompting you to over-invest in the wrong products and create a strategy that doesn’t work for you.

Trading Irrationally and Failing to Deal With Psychological Pressure

When searching for an easy way to make an income, day trading may seem like the best option at a glance. You come up with a strategy, execute the provided signals, and make money. This can be the case when everything goes as planned, and you start making profits every day. However, the problem begins when you begin experiencing failure.

The four emotions that result in making wrong decisions are:

  • Hope
  • Greed
  • Fear
  • Regret

Being an overconfident and greedy day trader can take a toll on you when you’re in a prolonged and deep drawdown. It translates into fearful and ill-informed trading while trying to recover losses. Ultimately, your performance keeps lowering because you end up trading irrationally without following your strategy. 

Being Sloppy

To make profits off day trading, you need to put in the work; it is not as easy as it looks, and you can’t make money instantly. Coming up with an effective trading strategy takes time with endless hours on your computer and several failed attempts. Traders have access to the same technology and chart platforms; therefore, it’s a competition. Being sloppy will only lead to failure and frustration.

Reinforcing Random Strategies

Random reinforcement involves attributing specific proficiencies or lack thereof to outcomes that are a result of luck. In day trading, these habits can build up for extended periods and can be very hard to outgrow. Traders who act based on intuition get hurt the most because they attribute their successes to intuition even when there is no edge.

Consequently, these traders invest more money, causing them to experience losses. Newcomers and experienced traders can both fall victim to this mistake.

Poor Management of Risks

Many traders go into day trading with making a profit as their end game. They have no plan of making losses. While making significant profits is every trader’s intent, failures are inevitable. When you fail to manage your risks properly and trade blindly, you’re likely to invest a lot when everything seems favorable.

When you start experiencing a drawdown, the objective shifts from making profits to earning back your investments then calling it quits.

Lack of Trading Stock Market Knowledge

Day trading requires a careful analysis of the stock market, interpretation of chart platforms, and quality education to be successful. Reading reports on websites and newspapers is useful, but it will not necessarily guarantee the desired results. Lack of proper and adequate knowledge in stock markets results in poor trading plans and risky investments, which in turn result in losses.

Strategies That Day Traders Can Implement to Be More Profitable

Strategies of day trading are more action-oriented and require you to be present during the session as you monitor live charts platforms. Some of these strategies include:

Scalping

This strategy aims at achieving numerous small profits from minimal price changes when they occur. You focus more on quantity trades in order to navigate the market. While it can be exciting, it is also risky. To increase efficiency, develop a sixth market sense and look for adequate liquidity, perfect implementation speed, and volatile instruments.

Here is a video about some scalping trading tips to become an expert short-term trader:

Momentum Trading

It is very straightforward and specializes in searching for high volumes paired with strong price movements. A trader takes advantage of a position by entering it, then exiting when the price movement losses its momentum. 

This strategy requires a lot of discipline to know when to exit and enter another position. It also requires patience to wait for the best position to enter, focus, and spot the signal to exit.

Reverse Trading

Also known as fading, counter-trend trading, and pull back trading. Reversal trading attempts to make a profit through reversal market trends. For instance, a trader can profit off an asset that was experiencing a downward price when there’s a signal that it is increasing. They have to identify the probability and strength of the potential pullbacks.

Author’s Recommendations: Top Trading and Investment Resources To Consider

Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.

Conclusion

Day trading is profitable, but it is not as easy as it looks at a glance. Most traders fail due to a lack of experience and knowledge on the stock market, a trading plan, poorly managing their risks, and trading irrationally. 

Also, setting unrealistic goals, being sloppy, reinforcing random strategies, and ignoring marketing changes will lead to failure. Some of the profitable strategies of day trading that you can leverage to profit from the market include scalping, momentum trading, and reverse trading.

BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!

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    Navdeep Singh

    Navdeep has been an avid trader/investor for the last 10 years and loves to share what he has learned about trading and investments here on TradeVeda. When not managing his personal portfolio or writing for TradeVeda, Navdeep loves to go outdoors on long hikes.

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