Please enable javascript in your browser to view this site!

Why Stock Market Day Traders Fail [And How To Avoid It!]

Almost everyone has heard this stat surrounding day trading (or stock trading in general). I still hear this generalization to this day when speaking with people who are misinformed regarding trading. The stat is that 9/10 day traders fail! 

Now, hearing this can be largely discouraging to people who want to test the waters with day trading and / or swing trading. Should amateurs take this "stat" with a grain of salt, or is there some truth behind it? 

Where did this stat originate from? Is there really only a 10% success rate for day traders? More importantly, if it is true: why? How is it that the odds are so stacked against people who want to try their hand at day trading? 

Many people initially would think it has something to do with the trader's computer, their broker, or how much capital they have. However, these reasons play a very small role in a trader's ability to succeed on the stock market.  What it boils down to, is traders often do not "show up" with the tools needed to succeed. For example, construction workers show up to work everyday with their tools and their blueprints to get the job done. When people treat their trading like a hobby, instead of business, is when they are predisposed to losing money - this is a mindset issue which relates to our Habits Traders Should Avoid article.  

That being said, there are many other reasons why a daytrader might fail. They get too emotional about any particular trade they are in. They have unreliable sources of information (such as Stocktwits or opinion based articles) which feeds into their own biases, giving them a bias confirmation in their head. This then turns into a guessing game for the trader, as opposed to objectively seeing the company / technical points of a chart. Both of these points can be countered by surrounding yourself with likeminded individuals (i.e. a Trader's Thinktank) which can help you stay logical and objective. Clearly, psychology plays a big role in the success of all traders. 

A few additional reasons amateur day traders fail is they do not have a plan (RULES!) before making a trade. They let their losing trades run, and cut the winners short. They go "all-in" out of desperation and blow up their account. All of these points can be countered by a trading education that includes proper risk management. 

Stay safe on the stock market, and if you have any questions, please feel free to comment below.