The No. 1 Reason Why Day Traders Lose Money

“90% of day traders lose money. 8% are successful. 2% make money consistently.” 

By Ed Emerson

It has to be the most oft-asked question going, whether you’re new at this or you’ve been at it for a months or even years: What’s the No. 1 reason why day traders consistently lose money?

And you’re not going to like the answer.

You may have noticed the strapline for HNW Magazine, which reads, “Hold Yourself Accountable.” When it comes to investing, holding yourself accountable for your actions is probably the important phrase you can carry with you through every trade, every strategy, every win and loss. 

So, what do I mean by that?

There is no shortage of advice out there on how to get started in day trading, what strategies to employ, the actual physical / tech tools you’ll need to help you trade effectively and certainly the plethora of programmes and training courses – many of which try to sell you on the concept of “making money quickly.”

Have you ever really thought about your path to financial security? You can do that here.

And it becomes very difficult after a while to separate the fly shit from the pepper, so to speak: which ones are worth your while and which aren’t. That’s an on-going battle for everyone in the industry. Unfortunately a lot of that is trial and error. 

But just like investing, don’t bet the farm on overnight success. It’s a myth. Successful day trading takes hard work, relentless study and finding and sticking with a strategy that works more times than it doesn’t.

That latter point is the key. Let me be clear: Consistency and being honest with yourself are the difference makers between successful day trading and on-going frustration and losses until you’re either broke or give up.

Marcello Arrambide writes the following on Trader Kingdom in his article The Biggest Lie in the Day Trading Industry

“It is always easier for us to point fingers instead of looking in the mirror and realizing that part of the problem is ourselves. Many of us do that in life and business and it is no different with day trading.

“The biggest lie in the day trading industry is when we lie to ourselves…Day traders that aren’t consistent normally have a pattern where instead of focusing on what isn’t working, they look somewhere else.

“It’s the classic example when we think that grass is always greener on the other side. Instead of putting our nose down and working through our issues we always think that another day trading strategy is better, that someone else can do it better, and we keep looking somewhere else instead of looking in the mirror.”

You know, a lot of people don’t think there are any similarities between day trading and investing and I disagree with that conclusion wholeheartedly. They’ll say that an investment that only lasts for minutes or hours bears no resemblance to one that needs to last for years to see significant returns. But it does in terms of our collective response to trading / investing adversity.

“If you’re interested in finding out how these secular waves of change can produce long term advantages then check out this short video here

What I’m seeing in the broader market, a cycle that has gone on for years now, are the supposedly long-term investors running for the hills every time one of the market indexes like the Dow Jones, Nasdaq, S&P 500 or FTSE 100 show even a hint of volatility.

They move their money quickly out of stocks and into places like cash and bond funds, whose returns in many cases is both less than inflation and in a continuing battling against long-term and historically low interest rates.

And if you don’t know what happens to the returns of bond funds (maturity date dependent) when interest rates rise, well, it’s the same as with Gold; they both tend to lose value. That’s not a good strategy right now.

The same goes for day trading. You have to dance with the one who brought you and not run off at the first sign of trouble, trading losses or even when you get a sever case of “trader envy” because some other (often couched as “magical”) strategy momentarily looks better than yours because some guy is smiling on the cover of the video.

We all feel that way at times. It’s the folks who act on that impulse that lose out.

In simplest terms, you have to be honest and not lie to yourself, and you have to hold yourself accountable when and if you do.

If you cave in to you emotions, or let desperation or exasperation take over your day trading strategy, you’re going to lose. The markets don’t care about how you feel. The only people who win when your impulses take over are the other traders out there.

And when you step outside of your trading strategy you then have only yourself to blame because:

  • You ran out of patience and decided not to wait until the parameters of your ideal trade were on the table because you hadn’t traded in a few hours or even a few days.
  • You’ve been thinking about a new way to look at your trading strategy that came to you in a dream after one too many shots of Sambuca the night before.
  • There was this really convincing article online that said you’re wasting your time strategising and you need to just play the candlestick game based on gut instinct and the raw force of will which can move the market any way you want it to go…as long as you believe and use the power of the crystals!

These are all convenient lies. You can take them away with you to make you feel better after you’ve lost money but they won’t keep you warm at night and they will drain your trading account dry.

You want to know the no. 1 reason day traders lose money? It’s right on the front page of HNW Magazine. Hold yourself accountable and don’t lie to yourself.  

As always, we’ll be looking at more of the “tools for the tools of the trader” in our next installments. Come on back soon now, ya hear. 

Now, why not have a look at The Day Trader’s Candlestick Con here, which focuses on the astrology and mythology surrounding candlestick charts and day trading.

Next, you can see a selection of other helpful articles on day trading strategy in the HNW Magazine Day Trader – Winning Short section.

Then do this – Make sure you don’t miss these signposts. Sign up to get HNW Magazine sent to you every week. It’s free, it’s easy and you can do it right here.

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