The Top Seven Reasons Why 90% of Daytraders Fail

Discussion in 'Trading' started by crgarcia, Sep 28, 2008.

  1. First off, I have no idea whether or not the "90% of daytraders don't make it" is even true or valid - however, most people that I talk to assume it to be true, so let's go with it.

    90% of restaurant owners don't make it. 90% of club owners don't make it. And 90% of daytraders don't make it.

    I am sure that in all three cases there are certain characteristics that all of the failures shared. This is certainly the case when it comes to daytrading. In almost every case of a "daytrading" failure, there are certain commonalities that all of the failed traders share. Here are the most common reasons why 90% of daytraders will end up failing:

    1. Under-capitalized. The number one reason for failure. You can't expect to quit your job with nothing saved except $15,000 in trading capital and expect to make it. It's practically impossible. Don't quit your job until you have pretty resources saved up (try $50,000 in trading capital and six months worth of living expenses).

    2. They don't treat it like a real job. Trading, and especially daytrading, is hard work. For some reason, people seem to think that trading is "easy", and invariably people become lazy. I will tell you this - all of the successful traders that I know work their asses off. They put in more hours than a full-time job. They are putting in 10-12 hour days during the week and are back at it Sunday night. Don't get into trading if you aren't prepared to treat it seriously.

    3. They don't develop their own systems. If you are going to try to trade for a living, then you need to develop your own systems that you are comfortable trading with. Systems that have a proven track record. If you are blindly following someone else's calls, then you are bound to eventually run into trouble. What happens if you quit your job and that ultra-hot daytrading chat room suddenly turns cold or shuts down?

    4. They don't have a set schedule. This relates to #2. Just because you are working at home, doesn't mean that you can exist without a proper set schedule. You can't wake up two hours into the trading day and expect to be successful. You can't book off two hours early to go golfing - what happens if you miss a big opportunity? Plan to be at your desk one hour before the market opens and one hour after it closes, and glue yourself to the chair for the rest of the time. It's a full-time job, and requires a full-time obligation.

    5. Lack of proper tools. If you are going to be a successful trader, then you need the proper tools. Proper computer setup, proper quotes setup, proper charts setup. This is a business, and you need to invest in yourself in order to be successful.

    6. Lack of support from your family. We talked about this yesterday. Make sure that if you have a family, they are completely on board with your decision. If your spouse doubts that you can make it, then you will have an even harder time making it in the long-run. Confidence is important. If your spouse doesn't have your back, then you need to really think twice as they will make your life miserable.

    7. Lack of non-trading capital resources. You can't trade without a safety net. You need to be able to trade without thinking about how you are going to pay your rent this month. You need at least six months worth of expenses set aside. You can't be sweating out how you are going to make your next bill payment because it will completely affect your confidence and negatively impact your returns.
  2. 8. Day trading is a game with a negative expectancy. If there were no transaction costs involved (spreads and commissions), we would probably see 50% losers and 50% winners (i.e. a zero sum game).
  3. As far as I know there are no billionaire day traders (nor will there ever be). You take something that is inherently volatile (The stock market or any market) and you dive head first into the most volatile manifestation of that market (intra day trading)

    Trends on a 6 month chart require considerable amount of share turnover to reverse. "Trends" on an intra day chart could be reversed with something like 2k shares.

    There is no equivalency between trends on long term (6 months+) charts and intra day charts for a simple reason that somebody looking at a 6 month chart could make the decision to sell a large portion of shares and you would never see it coming looking at an intra day charts. In essence 6 months (daily) "spill over" onto intra day charts.

  4. That's why many day traders trade very liquid markets that are hard to corner: forex and the major indexes.
  5. Your comment makes it 10th top reason why daytraders can fail:

    They ignore long term charts.

    If you think that stock A is going to trend up then scalp it all day in the long direction while using long term chart stops. Simple and it works as long as you can predict long term trend correctly.
  6. No billionaire daytraders?

    SO WHAT.

    What an ignorant response.

    Is your qualification to be a success that you can become a billionaire doing this? If so, good luck finding any profession that offers the average person that chance.
  7. I guess logic was not your friend in school. This is not just "any" profession this is all concerning various forms of financial instrument manipulation.

    If I have to choose a school of that profession it would be important to look at what major proponents of that school have achieved.

    To this day there is nobody on the scale of Soros, Buffett, Lynch from the day trading school of thought. Nor will there ever be. That would indiciate there are some inherent flaws in that school of thought.
  8. bkveen3


    There is no prop firm out there worth a billion?
  9. No billionaire day trader's? How do you know? And if there arn't any then the last couple year's of my life seriously studying the market and making good profit every year has been a total waste.

    Your opinion and relation of long term charts to short term charts displays that you have no knowledge of trading and zero confidence in trading. Truly understanding monthly weekly and daily trends seriously increases positive results if a day trader has the capability of knowing what stocks to look at, when and finally the execution of the trade for the certain timeframe that is being dealed with.

    Stock prices are at where the market thinks they should be at. Simply advocating that day trading is unreliable and a bad form of taking advantage of the market because of some random elephant coming at the same time of you being in the trade for only around 10-30 minutes is absurd.

    Publix, leave your ignorant views to politics. At best you should be asking successful traders how to trade instead of proclaiming conspiracy theories on why you think trading intra day and it's "school of thought" is questionable.
  10. Kind of a pithy list. Some of these are minor to contributing problems.

    Day traders are playing Vegas Black Jack where the house edge plays with $2000 margins instead of $20 stakes. The brokers, the exchanges, the government (various taxes), and trading services all have a rake off the table.

    But the two main problems of most day traders are:

    1) He has no serious edge or outperformance methods. Even in a perfect world, their trading capital will bleed away no matter what they will do.

    2) Money management skills are poor. Instead of controlling leverage, losses and banking optimal wins, they lose money in fits and starts and emotional factors and mistakes compound their losses.
    #10     Sep 28, 2008
    brisvegas likes this.