10 Reasons Why Most Day Traders Fail

A table with no traders sitting at it just a laptop

There is an infamous saying in the trading community, and you’ve likely heard about it:

90% of traders lose 90% of their trading capital within 90 trading days

That’s a high number of day traders who fail in this game. But, what are the reasons behind this poor performance of day traders?

Besides the lack of quality trading education, day traders often do the same mistakes over and over again. Here are the 10 most common reasons why most day traders fail.  

Reason #1: They think trading is easy

Trading can be easy once you have an individual set of rules and intuition while trading the markets. However, this doesn’t come overnight. Most beginner traders, when they’re just getting started with trading, think that trading is easy. 

All you have to do is buy when the blue line crosses the red line, and sell when the red line crosses the blue line, right? Well, successful trading doesn’t work like that.

Beginner traders should be focusing on the foundations of trading

It takes experience, dedication, and screen time to gain intuition and to trade the markets profitably. While intuition is an invaluable tool for the professional trader, it takes time – sometimes years – to be able to rely on your intuition. Beginner traders should be focusing on the foundations of trading and on building their own set of rules rather than rely on intuition. 

Trading is possibly the hardest way to make easy money. Markets change over time, and traders need to have the right skillset to adapt to new market conditions fairly quickly. In addition, competition in the markets is fierce. 

Newbies have to compete with professional traders, hedge funds, and algorithms to get their piece of the cake. Traders can become successful and many of them do, but bear in mind that there is a learning path that takes time.

Reason #2: They neglect risk management

Risk management is one of the top reasons why new day traders fail in this game. To a large extent, trading is all about managing your risks. While we cannot predict what the markets are going to do in the next minutes, hours, or days, but we do have full control over our risk levels at any given time.

Successful traders are amazing risk managers. They don’t risk more than a certain amount of their trading account on any single trade, they are aware of the reward-to-risk ratio of the setups they’re taking, and they keep managing their risk once they’re in an active trade.

Compare this with someone who doesn’t know how to manage trading risks, and you’ll quickly understand why so many day traders fail to become successful. 

I do understand that it might be appealing to increase your risks on certain trades, and there’s nothing wrong with doing so. There are certain setups that deserve higher trades, but successfully identifying those setups requires trading experience. 

Until you get there, keep a close eye on your risk levels and avoid the risk of ruin (i.e. blowing your account) at any cost. 

Reason #3: They don’t let winners run

Human traders are often trading based on emotions, such as fear and greed. However, the best day traders out there are able to realise when their emotions start to interfere with their trading decisions. They know how to control their emotions by using strict trading rules for entries, exits, and risk management. 

Many day traders allow fear and greed to take control over their trading. In a winning trade, fear to give back open profits and greed to make more on a trade inevitably leads to trading mistakes and large losses.

You should always let your winner run until there is an undeniable reason to close. You can create a number of rules that list your reasons to close, such as:

  • A trend reversal
  • A trendline break
  • Unusual trading volume
  • Breaking news

…to name a few. 

This way, you’ll have an effective method to let your winners run as long as possible – just like the professional traders do.

Reason #4: They don’t stick to a trading strategy

Many day traders, especially in their early trading career, like to jump from one trading strategy to another. In essence, there’s nothing wrong with this. I strongly believe that every trader has to try different trading styles and strategies before they find what works best for them. 

Some day traders might be good at following the trend, while others might like to fade the current trend by taking a contrarian approach. Others might look for breakout or momentum trades.

However, many day traders spend too little time to get familiar with a trading strategy. They’re jumping from strategy to strategy with the first losing trade, which doesn’t allow them to get a feeling for the strategy they’re using. 

Stick to a trading strategy for several weeks before trying out another one. Once you find a strategy that works for you, start fine-tuning it over time to get the most out of the markets. Only after you become completely familiar with one strategy, consider adding a new one to your arsenal.

Reason #5: They don’t have a trading plan

A trading plan defines your trading strategy> This includes entry and exit points, trade management, risk management, and any other rules that you may find important for your trading. It’s almost impossible to become a profitable trader without a well-defined trading plan. This  is why most successful traders create one in their early trading days

On the other hand, the majority of unsuccessful day traders are trading without a trading plan, which is much like hiking without a map or sailing without a compass.

Trading plans define how you approach the markets. Besides the aforementioned points, they can also include the markets that you’re trading, your timeframe, the types of orders you’re using, your morning routine, and the daily review process.

Reason #6: They want to be always right

Trading is a probability game. For any single trade, there’s roughly a 50% chance of being wrong. However, if you have an edge, then you’ll likely have a slightly higher success rate over a given number of trades.

Even professional traders don’t have a 100% winning rate. In fact, it’s more likely that their winning rate is around the 60% mark. Some traders have even lower success rates, yet they’re still able to make a decent profit with trading. Why?

Trading is not about your winning rate, but how much you make on your winning trades

Trading is not about your winning rate, but how much you make on your winning trades. If your winners are larger than you losers than you’ll make a profit even with a 50% success rate. 

Many inexperienced day traders focus too much on their winning rate. Instead their field of focus should be on their actual trading. I understand that it’s not easy to stay motivated after a series of losses. There will be times when you’ll doubt your trading skills, or even think whether trading is the right job for you. 

It’s hard to push yourself and follow your trading strategy after a bad trading day, but guess what, that’s exactly what the most successful day traders do. They know that losses are part of the game, the cost of doing business. 

You’re neither as good as you think you’re after a series of winning trades, nor are you as bad as you think you’re after a series of losses. 

Reason #7: They lack discipline

Discipline is the cornerstone of successful trading. I have never met a profitable trader who isn’t disciplined with their trading approach. It takes discipline to follow your trading strategy, execute your trades at the right time, and close them at the best possible price to grow your bottom line. 

Having discipline in trading requires an efficient set of rules. That’s why we emphasise the importance of trading plans and rule-making so much. Without rules, there simply cannot be discipline. And without the right trading education, traders will have a hard time defining their rules.

Read all about our philosophy to learning trading on our About Us page.

Reason #8: They overtrade

Overtrading is another major reason why most day traders fail. Overtrading refers to taking too many unconfirmed trades with too much size. 

Markets can be difficult to understand at times, especially for inexperienced day traders. When looking at a chart, you’ll see almost an infinite number of profitable trading opportunities that could have been winning trades. Undisciplined traders feel an urge to take those trades on huge size, which inevitably leads to large trading losses. 

So, what can you do to prevent overtrading?

Controlling your emotions and having a strict and well-defined trading plan can be a huge part of the solution. Fear and greed often lead to overtrading. After a losing streak, you’ll feel the urge to enter into average setups in order to return your losses. 

Similarly, after a winning streak, greed may kick in which again leads to taking low-probability trades. Try to control and resist those emotions by creating and sticking to a set of trading rules. 

Reason #9: They don’t review their trades

Successful traders review their trades, whether on a daily, weekly, or monthly basis.

This is possibly the best tip I can give to you today:

Review your trades and try to identify patterns where you made trading mistakes, setups where you could be more aggressive with your position size, and prices where you should cut your losing trades instead of sticking to them. 

Our brain doesn’t make a difference between doing something and thinking about doing something. Whenever we think about trading, do a weekend preparation for the upcoming trading week, or review the trades that you’ve recently taken, you’ll become a better trader.

A great way to have all of your trades in one place is by keeping a trading journal. A trading journal consists of journal entries (trades) with their description:

  1. The date and time you took the trade
  2. The market you were trading
  3. The entry and exit prices
  4. The strategy used
  5. The profit and loss of the trade

…and any other information you may want to achieve. 

Keeping a trading journal in a spreadsheet software is relatively simple. But do remember to review your trades from time to time to become better attrading.  

Reason #10: They treat trading as a hobby

Trading is a job and requires full-time commitment and dedication, especially during the learning process. I’ve seen many talented traders who are eager to become better traders: They do their morning prep, they trade using a set of rules and don’t let emotions take over control, and they review their performance regularly. They compete. 

If you don’t put in the required screen time to gain valuable trading experience, you’ll likely have a hard time to become a successful and consistently profitable trader. The moment you start taking trading seriously, you’ll immediately see a difference in your bottom line. 

Do you have any questions about trading? Please do write me a comment below and I’ll try an answer it.

Further reading:

Why Forex Trading May or May Not Be For You

Why Day Trading Course May Not Be What They Say They Are

What Makes a Good Trading Coach (And How to Find One)


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