The stats are pretty clear – over 90% of people who day trade are not able to generate consistent profits.
This pretty shocking statistic means only a handful of traders actually have anything to show from their day trading activity and some have sadly lost money.
And still millions of people around the world still engage in day trading, many of them on a regular basis.
Once primarily practiced by professional investors, day trading is increasingly becoming popular thanks to superior online trading platforms and free-stock trading apps such as Robinhood.
But what is going on? Why do so many people lose money while trying to profit from market fluctuations and how can you join the 10% of traders who are consistently profitable enough that they have made it their full time living.
Why Most Traders Lose MoneyLike Ross Cameron says, day trading is the hardest yet easiest job in the world. What he means by that is that you can trade on your laptop from home or a hotel room from almost anywhere in the world, as long as you are connected to the internet.
It is an easy and amazing job.
You are not hammering roofs in August or going out on the highway in 10 degree below weather in the middle of January. But while day trading is a pretty nice job in a lot of ways, it is very hard in some aspects since 9 out of 10 traders fail.
So, what are some of the reasons for those failures and why do most traders struggle to turn a profit.
- They lack of a trading edge/strategy
One of the reasons why most traders fail to bring their trading to its full potential is because they trade without an edge or strategy that works. Most traders don’t even have a clue what a trading edge is, let alone how to develop one.
A trading edge is when you can identify something in the market that gives you an advantage or insight into how well a trade will do.
Whether you are a beginner trader or have been trading for some time, a trading edge is necessary as it can greatly keep you on track to achieve profitable and steady trading results.
- They fail to review their trade results
The second reason is because they don’t keep a record of their past trading activities that they can go later study to sharpen their skills.
Chess masters keep journals to record down their thought process of the game and their plays. Scientists have journals to track their latest findings and the results of their experiments.
This should be the same for traders! Unfortunately, only a few traders have a trading journal that they use to review their trades.
- They trade with emotion rather than systematically
Thirdly, many traders fail to control their emotions when trading and end up ruining their hard-earned cash. For instance, after having multiple losses in a trading session, a trader is afraid of having a losing day.
This worry triggers the trader to over-leverage and blow up their trading accounts.
It can also cause FOMO. One of the most common trading emotions you will come across, which stands for fear of missing out.
This happens all the time when you see a hot stock that is ripping higher and all you want to do is buy some shares but can’t get a good entry so you end up chasing it. This usually results in a bad entry and increases the likelihood of taking losses.
- Lack of discipline
Discipline is the most important trait of successful trading.
Lack of discipline is often the cause of the most common trading mistakes like executing trades prematurely, over-trading, revenge-trading, breaking trading rules, violating risk management rules, making impulsive trading decisions, and more.
All of these things mostly result in losing much more cash than what a trader had initially projected and what would be necessary.
What You Can Do To Realize More Success In Your TradingTo avoid both of these mistakes and become more successful, traders ought to a few important things that we’re going to discuss in the following section:
Define your trading edge
Focus on a strategy that makes sense to you and master it as opposed to trading all types of strategies.
For example, Ross focuses on small cap momentum. Basically, a small cap is a company with a market capitalization of between $300 million and $2 billion.
Ross has mastered several small-cap trading strategies and knows how to find support and resistance on charts. His trades are mostly based on small cap stocks that rise 20-30% or more in a single day. These stocks are typically priced between $2 to $10.
So, instead of trading Apple (NASDAQ: AAPL) and many of the other large cap stocks, Ross prefers to trade small cap stocks which are generally more volatile.
Review your trading process with an open mind
As mentioned earlier, most traders never look at their trades again once they have closed them. They just jump to the next trade, forget everything they did previously, and completely avoid learning effects.
Make sure to review your trading process on a regular basis. Keep an open mind while doing so and it will show you everything you need to know.
You also have to be wary that if you are too stuck in your ways, you will end up imposing your ideas on what the market ought to do, instead of reacting to what is really happening.
Make revisions where you see weakness in your trading
Most traders do not understand why they need to revise their strategy. You need to take your trading strategy through a process of trial and error for it to be complete. While this will take time, it is effective and works perfectly with the market and increases the chance of success.
One easy way you can do this is by writing down the mistakes you make frequently and putting those physical notes next to your trading screen where they can see them at all time, so they can help you become more aware of your actions.
Always work on improving and adapting to market conditions
Having a trading strategy is not enough.
You constantly have to change your trading behavior from trade to trade in order to adapt to changing market conditions. If you don’t adapt to constantly changing market conditions, you will never be able to make decent profits in trading.
Volatility is the factor that keeps on changing and when it changes, you have to change your trading strategy too. By adjusting your trading approach and analyzing volatility accordingly, you can provide a whole new level of help to your trading strategy.
Traders have to know what to change, why to change it and when. While no trading strategy works 100% of the time, it is your responsibility to find ways to make your trading strategy work in every market condition.