Many brokers have reported over 90% of new traders fail to make money. Like in most professional endeavors the majority of people that start are not successful. Whether it’s professional sports, law degrees, or medicine if you start from the beginning you will see that few finish the journey to the end. Trading is not that different from any top tier pursuit it’s just easier to track and witness.
I would add that the 90% of traders that don’t make it to profitability also make approximately 90% of the same mistakes that cause them to fail.
Here are the 10 day trading mistakes that I see that are common in my daily messages and emails. Knowing what to avoid can be just as important as knowing what to do. Start with subtracting these ten things from your day trading process.
Day traders shouldn’t miss the morning trade.
The best day traders I know focus on trading the first hour of the stock market open or the most active hour of their market. The first opening range breakout tends to be where most of the action and volume is on the day. If a day trader misses this initial move they can be left waiting for the next signal for hours and many times nothing else really happens until maybe the closing hour. Time your day trading to where the action is to catch the biggest moves and avoid the dull chop of the remainder of the day.
Don’t trade against the primary momentum without a confirmed reversal.
Day traders can lose a lot of money fast trying to buy during a down move that has momentum or sell short in an up move with strong momentum. If you want to take a counter-trend trade on a intraday move wait for a confirmed reversal, the more signals the better. Look for divergences between price action and an indicator, a trendline break showing a reversal, and a moving average cross. The more signals the better, the less signals the greater the odds of failure on a counter-trend trade.
Trading without a stop loss allows big losses.
Big losses occur when losing trades are not capped and managed. Huge losses are the primary cause of unprofitable day trading after you have an edge. Risk management is needed for both survival and profitability with any type of trading. If you don’t plan to manage a day trade with a stop loss then plan to not be profitable long-term.
Trading too big at the start.
New day traders should start with small accounts so they learn hard lessons with small amounts of capital. It’s smart to go live will real capital at the smallest amount possible that’s still meaningful so you learn about managing your own emotions. You want to learn the first lessons about yourself as a day trader by losing as small of an amount of capital as possible at the start. Keep your tuition fees to the market as a beginner as small as possible.
When you are starting out as a new trader: “Trade small because that’s when you are as bad as you are ever going to be. Learn from your mistakes.” – Richard Dennis
Using too many indicators
Only use the indicators required to execute your trading strategy. Day traders only need a few indicators like a trend indictor, and overbought/oversold indicator, and a volatility indicator. Three indicators are usually enough to create signals and more usually just lead to confusion.
Don’t change a trading plan while it is active.
Trading plans should be created while the market is closed and followed while the market is open. Once in a day trade the trading plan stop loss or position size, etc. should not be changed. Wanting to change a plan during live trading is usually due to emotions, wanting to avoid a loss, or the ego trying to prove they are right. Create your trading plan when the market is closed so you can execute quickly when the market is open. Speed is an edge for day traders and indecision is a risk on the intraday chart.
Wanting to make big money fast is dangerous.
Wanting to get rich quick in day trading is basically the formula for losing all your money. Day trading is a game against professionals and requires a lot of education and work along with training to perform profitability. It’s a professional endeavor and shouldn’t be taken lightly. Wanting to make big money fast leads to big risks that causes big losses, this is normal, don’t be average. Being average in day trading loses money.
They don’t learn how to day trade on a demo account first.
You want to learn what works in day trading first on a simulator and while backtesting not with real losses. Day trading requires speed of execution and knowing your platform and trading on your brokers or platforms demo account first is a great way to learn your way around. You also need the stats of how your signals performed in backtesting to forward test in a simulator to verify the robustness of your system. Pilots learn in simulators before flying real jets to avoid costly mistakes and a simulators can do the same for day traders.
They don’t understand their strategies expectancy.
A day trader must know their strategy has a positive expectancy for profits over time. They also must know what to expect in win rate, losing streaks, and drawdowns so they don’t give up in the short term on a good long-term strategy. Losing trades can cause a day trader to quit if they don’t understand it is part of the process of winning and unavoidable. They need to under the frequency of losses.
Don’t quit before you have put in the effort.
Most day traders don’t fail they just quit too early before they even put in the effort to see if they could have been successful. Plan on putting in the time, effort, and research needed to become a successful day trader before you start, or don’t start at all. You must give yourself a chance to be successful first, then if you discover day trading is not for you, then you can quit later, but at least find out after doing the work before giving up.