8 Reasons Why Day Traders Lose Money in the Stock Market

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It is estimated that almost 80-85% of day traders lose money in the stock market. Generally, 70% of day traders do not last more than the first year and 90% do not last more than the third year. What is the cause of this phenomenon? Why do day traders always lose money?

Day trading game, of course, a high-risk game. Contrary to what many people think, day trading is not about the right idea and the right trade. Even more important is how you manage risk and maintain trading discipline. Simple mistakes made by day traders including averaging positions, trying to beat the market, over-trading to recoup losses, over focusing on trends etc. have contributed to many stories of losses in the Indian stock market. Interestingly, 90% of day traders lose money day trading

Table of Contents

There are 8 main reasons for this.

Lack of trading discipline

This is the main reason for day trading losses in day trading apps. Trading discipline should focus on three things. First, there must be a trading manual to guide your daily trading. Second, you should only ever trade with one loss. Third, you must post profits regularly. If any aspect of disciplined trading is compromised, day trading results in losses. Trading discipline is essential because as a day trader your main focus should be on protecting your capital and limiting your losses.

The market panic is too much

One of the main reasons traders lose money day trading is panic. In the stock market, when you panic, you are actually subsidizing other traders who don’t panic. Profit always flows from traders who panic to traders who don’t panic. When you panic in day trading, you tend to short your position prematurely. Day trading requires a basic risk appetite, but your risks must be well managed. The main rule is not to panic just because the market shows signs of volatility.

Trade versus market

For long-term investors, it pays to take a contrarian view of the market in the long run. But if you are a trader, you need to make sure that you are always on the side of the market. As legendary stock trader Jesse Livermore said, “There are no bull and bear markets in trading, there are only markets.” There is only the good side. “The advantage for traders is the momentum aspect. Always trade based on momentum and never try to beat the market. This causes losses in day trading.

There is no capital limit for trading

This is an important part of your trading discipline, especially in day trading. You have to limit your maximum losses at different levels. Each trade must be accompanied by a stop loss. A loss limit must be set for each trading day. If the loss occurs within the first hour, you must have the discipline to close your trading terminal for the rest of the day. There is a general capital loss limit and you will want to go back to the drawing board and review your entire trading strategy. This is your insurance against trading losses.

Try to recover losses quickly

This is a common problem among many day traders. When they take a loss, they either try to average out their positions or try to aggressively resell to cover their losses. This will only lead to more losses. If you suffer a loss, it means that the trade was wrong. When you average trade or over trade, you are simply wrong twice. Losses are part of your trading process, so it’s wise to set limits and stick to them.

Rely on trading skills

One of the biggest challenges for day traders is where to trade and what stocks to trade. While brokers provide clients with trading ideas, traders also often rely on outside sources for trading advice. It is best to avoid this situation. The best way to trade is to gradually learn how to read the charts and how to interpret the news feed and trade on your own. It’s a slow process, but really there’s nothing left to do but learn methodically and do it yourself.

Ignore trading plans and trading journals

These are two very important things that most day stock funded traders tend to forget. First, let’s look at the trading plan. A trading plan describes how to design and execute intraday trades. This includes how to set stop losses, profit targets, what factors to consider, how to choose the right trading time, maximum allowable losses, etc. In fact, a trading plan is a charter of your trading activities that you must strictly follow. The trade log is a record of your trades for the day, along with the rationale and EOD analysis. A trading journal is designed to help you identify the gaps in your trading strategy and fix the gaps. If you don’t take your trading plan and trading journal seriously, your success as a day trader can be difficult.

Focus on being right, not making money

There is a fine line between being right and making money. Let’s start with a rhetorical question. What is the difference between an analyst who predicts the direction of the Nifty 9 times out of 10 and an analyst who only predicts it 6 times out of 10? The answer is that there is no difference because neither of them make any money from trading. A day trader should focus on making money from trading and not on making the bottom and top of the market. Day traders need to be very clear that the main focus is on making money. time period!

Most day traders lose money because they don’t do the little things right. If you look after the micro, the macro will look after itself.