If you have been trading for any amount of time, you have likely heard the stat… “90% of day traders fail.” Is it true? Today, we delve into a topic that has intrigued many of us: the attrition rate among day traders. As a consistently profitable trader and trader's coach, I've witnessed the highs and lows of this challenging industry. In this article, we explore the percentage of day traders who quit, understand the reasons behind their decisions, and discover ways to avoid failure and persevere while finding your footing in the stock market.
What Percentage of Day Traders Quit?
Let's face it: day trading is not for the faint of heart. The volatile nature of the markets, combined with the pressure to make quick decisions and manage risk, can be overwhelming. So, what percentage of day traders actually stick around? According to various studies and industry observations, it is estimated that around 80% to 90% of day traders eventually quit within their first year. This may seem alarming, but let's dig deeper to understand the underlying reasons.
Why Do Day Traders Quit?
Unrealistic Expectations
Many newcomers are attracted to day trading by the allure of quick profits and financial freedom. They assume that day trading is a get-rich-quick scheme. However, the reality is that consistent profitability takes time, effort, and a solid understanding of market dynamics. Most traders come into the market with no education or understanding of price action. They don’t know what stocks to trade, or how to get involved with them in a way that limits risk. Unrealistic expectations often lead to frustration and disappointment, prompting traders to throw in the towel prematurely.
Lack of Proper Education
Day trading is a skill that requires continuous learning and adaptation. Traders who enter the markets without a solid foundation or proper education are more likely to struggle. Without a comprehensive understanding of technical analysis, risk management, and trading psychology, the road to success becomes much more challenging. If you are a new or developing trader looking to get involved with markets, get educated - Take a trading course or hire a mentor. Find a community to trade with. Limit your risk by trading with the lightest possible size. If you do this, you’ll have a good chance of survival and ultimately profitability.
Emotional Turmoil
The psychological aspect of trading cannot be underestimated. The constant battle with fear, greed, and emotional biases can take a toll on even the most experienced traders. The inability to control emotions and make rational decisions under pressure often leads to poor trading outcomes and, eventually, quitting. Trading emotions are much easier to navigate once you have guidance. When you are planning your trades and you know exactly what setups to look for, the emotional turmoil tends to dissipate.
Insufficient Capital
Day trading requires sufficient capital to withstand losses and navigate through drawdown periods. Traders who underestimate the financial requirements and enter the markets with limited funds are at a higher risk of running out of capital and being forced to quit. Traders tend to oversize very early in their trading career before they have developed a REAL trading edge or understanding of the market.
Blown trading Accounts
Unfortunately, one of (or a combination of) the four prior points results in an account blow-up. Most developing traders usually only give themselves a single attempt at success, and once that initial trading balance is gone, they quit. Developing a profitable trading edge takes time and practice. Most traders fall into the trap of risking significant portions of their capital on high-risk trades without a proven strategy. The market has an interesting way of rewarding bad trading behavior, and as a new trader, it’s easy to think you’re doing the right thing if profits are flowing in. However, the lack of a real trading edge, a solid trading plan, and a risk management approach can lead to catastrophic losses, causing them to quit in frustration.
Avoiding Failure and Persevering as a Day Trader
Now that we understand the challenges that lead to quitting, let's explore some strategies to avoid failure and persevere as a day trader:
Education and Continuous Learning
Develop a solid understanding of technical analysis, risk management, and trading psychology. Most importantly learn an “easy money” setup from a course or mentor who is actively trading the markets. From there, focus exclusively on mastering that setup. If you want to learn the easiest setup in the market, join us in the Trading Mentorship Group.
Document your trades
Trade review and documentation are paramount to accelerating your learning curve and developing your edge. A simple spreadsheet can be used to track your trades and notes. However, we recommend being more detail-oriented and using something like our trade review and trading playbook template. If you want to learn more about trade review and the “best practices” - Click here.
Cultivate Discipline and Emotional Control
The absolute best thing a new and developing trader can do is to focus on a singular setup and have the discipline to only trade that setup. Stick to your trading plan, manage risk effectively, and learn to feel the emotions that can come with trading. Implementing pre-defined rules and maintaining emotional balance will help you make rational decisions, even in the face of market turbulence.
paper / simulator trading
Before risking your hard-earned capital, practice your trading strategies in a simulated environment. Paper trading allows you to gain experience and test your approach without real money on the line. You have the benefit of learning how to navigate the broker, and how to execute in real time. It's an invaluable way to build confidence and refine your strategy before entering the live markets. Simulator trading will not have an emotional component, but it is still a very valuable exercise.
Patience and Persistence
Remember that trading success is a result of consistent effort and continuous improvement. Be patient with yourself and the process. Learn from your mistakes, adapt your strategy when needed, and keep pushing forward. Be sure to give yourself enough time to succeed. I have seen some traders develop profitability within 3 months, and others take 3+ years. Each person’s journey will be different, though the best way to shorten your learning curve is to have proper guidance.
Conclusion
While the percentage of day traders who quit may be high, it doesn't mean that success is unattainable. If you come into the markets with the right mindset, you can achieve profitability. By understanding the challenges that lead to quitting and implementing strategies to overcome them, you can position yourself for long-term success in the world of day trading. Remember, it's a journey that requires continuous learning, discipline, and a resilient mindset. Stay focused, stay determined, and let your passion for trading guide you toward achieving your financial goals.