Why Day Traders Lose Money

If you have been around the day trading and investing circuit for any amount of time, you have undoubtedly heard the statistic that 95% of day traders will fail and not make any money. There is a ton of research and speculation as to the exact reasons why. Today, I will illuminate some of my findings on this very subject.

Why am I qualified to speak about this topic? I have been trading for over 25 years now, as an institutional trader and retail under my belt. I now share my knowledge and experience with new traders on what it takes to become successful in those markets, saving them from the same costly mistakes that I made along the way. I have worked as a mentor with thousands of people in the past years and have learned a few common themes along the way.


As the majority here are trying to make money spread betting, and, are either not able to do so, or are making very little, or, are actually losing money, I am going to start a discussion so that traders can learn Why Day Traders Lose Money.


Now, we will start by looking at what normally happens, and that is, according to all the experts, most day traders can expect to lose a good bit of money before they start to make it. So, maybe if I show you how to lose money, instead of how to make money, it may be more fitting.



Trading success means being consistently profitable no matter how small the profits may be. At the end of the week the day traders' account is healthier than it was at the start of it. At the end of the month, the swing traders' account is healthier than it was at the start of it, etc...

Trading failure means being consistently loss making, i.e. the reverse of the above. The day trader is down over the week and the swing trader is down over the month etc...


From my own experience I would say that the quickest way to lose money is to take notice of what so called online mentors have to say. They really do not know much more than you. And do avoid learning to read candles and volume, this would be quite likely to lead to you winning more and losing less.

The second best way is to try and run before you can walk. I am thinking of people lucky enough to have some sizeable savings that want to get in at big money per point, rather than learning with pennies per point over several months.

The third best way to lose money is to be impatient. Try wanting to get there far too quickly. Try rushing into trades without thought, in combination with all of the above. Try wanting to be 'in' all the time. And certainly, you should feel that you are doing something wrong, or at least, are not game, for not being in all the time. It is also a great help after a few weeks in your desire to lose money, to start taking yourself seriously as a trader, and to become a little bolder.

Try also not to dwell on the following; the avoidance of a loss is just as profitable as a win, as far as your account goes.

Try also the avoidance of stop losses; after all, you wouldn't want to get caught up in a spike would you.

Try also winning a few big payouts, this should set you up for a huge pay in.

But let's try to find out why so few succeed? Trading in a disciplined manner is not easy when one has to cope with the frustration of often seemingly random events, that the paranoid trader may feel are conspiring against them

This includes things such as - you try shorting a breakout, it does not happen, your Stop is hit. You try to short the same breakout again, the breakout does not happen and your stop is hit again. The third time you decide not to trade the breakout - and the result is that if you had have traded it this time, you would have made profit.

Furthermore, if you had held onto either of the first two losing trades, without taking a stop-loss, they would have come back into profit when the eventual third breakout materialised. This is frustrating, as it seems like random pot luck determines if you placed your trade/s at the right or wrong moment, and to a large extent I think it is random Pot Luck - when it comes to what works and what doesn't work.

The trader can decide to trade the breakout every time their trade entry criteria is met, taking each and every stop-loss along the way, or they can stand aside after a few failed attempts, in order to avoid possible further losses, only to watch if and when the eventual breakout materialises.

The trader could also see that the breakout is occurring, enter the trade too late, and see the trade reverse against them resulting in another failed trade.

This type of negative experience and frustration can also lead to fear of failure. Therefore the trader may pass up on other types of good trade opportunities, only to see them move into profit - as they had foreseen, but were too scared to trade. They may then hastily try to enter at a following entry opportunity that is not as good as the last, this trade fails. They may now be thinking, I should be +20 pips in profit now, but instead I'm -10-pips!!! = more frustration.

Therefore the frustrated, indiscipline and potentially doomed trader may put up with such frustrations for so long before deciding, no, I'm not accepting that my stop-loss has been hit this time, I'm going to hold onto the trade, and it should come back into profit just like the others. The trader may get away with these undisciplined trade management decisions (which they may only resort to on a few rare few instances) for so long.


However, somewhere down the line the trader will find that price moves further and further away from the stop-loss that they didn't take - and now wish they had took it - leading to them being deeper in the red, unable to trade due to this losing trade hanging over them. At some point they may have to add more funds to their account following a margin call in order to keep this doomed trade alive, or they accept a big loss on that one trade. and they only have a small fraction of the capital left that they had previously.

Some people flit from one system to another. This is in part may be because of the failure to accept any losses at all, and/or a general fascination with the markets as a game. Another reason for failure is expectations. It has been said of army generals that they are fully prepared to fight the last war! I wonder how many newbies tweak their settings to win the last few trades. Only to find the revised settings fail on the next set of trades.

I believe traders who set themselves a daily target, or a modest target is more successful. For example, if the market moves 120 pips, many newbies wonder what they need to do to maximise their settings to get 120 pips, and may feel cheated if they got anything less. When, the more mature traders, may be satisfied with a system that gets them 50 of those 120, knowing that in the long run, they have a more stable equity curve, based on a more robust system. The need to get all the pips is part of greed, and of the feeling of missing out.

This is basically a case of trying to run before you can walk.

Language learning has similarities to learning to trade, which illustrates the progress of lack or progress towards success. It's easy to grasp some of the basics - the 'bonjours' and the 'une biere svp'. They can serve you well in straightforward and limited situations, just as using simple techniques such as MA crossover may serve for a time. However when you have been arrested in the middle of a riot in Paris you need a more extensive vocabulary!

Most people want to become fluent quickly, in fact more than that - immediately. They are not content with the 50 pips, but want the 120.

They struggle for a while but soon come to the realization how much dedicated work it takes. They then give up.

Those who continue at it, realize that they should let go of the idea of immediate fluency and instead, work at listening, adding a few extra words each day and practicing.

One day, eventually, they realize that they are now fluent and, despite all the hard work, it seems now as if it happened without even trying...


Why do most day traders lose?

Because most people are not particularly intelligent.


Because most people are lazy and retarded.


Because most people have a lousy attitude towards hard work.


Because most people are not prepared to spend 3 to 5 years working hard at it.


Because most people think it is an easy way to earn a fast buck.


Because most people are not prepared to drag themselves off the floor and start again after a particularly bad reversal.


Because most people gamble and do not play the probability game correctly.


Because most people do not know how to or even want to conquer their fears.


Because most people are insatiably greedy; for instance adding more money after a success, when they should be patiently accumulating.


Because most people really do not have a fucking clue.


Because most people are not in full control of themselves.


Because most people do not have an edge - or ability to consistently pick good entries.


Poor money management - i.e. bad use of leverage.


Insufficient capitalization.


Unrealistic expectations.


Trading against the trend.


Fear. Telling oneself that the market will turn after the price has fallen too far. That is a kind of hypnotism similar to that of a rabbit looking at headlights. If you have your 100 pounds capital divided into 10 pounds per trade you must remember that, if you disobey that rule, you are removing capital meant for your next trades.


When I hear that "I think it will come right" expression I know that that trader is another one for the kuku land. Get rid of that attitude right away- believe me, I've been there but I was one of the ones that had my 1000 pounds divided into 100 lots at 10 per trade and have survived.


Successful traders:

Keep focused and be able to sort out the truly valuable information from all the dross - the background noise, some of which is intentionally designed to mislead.


Do not divert their attention with searches for holy grails such as multitudinous variations on indicators, all the latest fashionable theorems etc. This is another variation of (1) - they focus on the obvious, even though others may overlook it.


Do not follow every guru or attempt to take shortcuts by using mechanical systems, alerts or watch lists provided by others when they do not understand the mechanics upon which they are based, assuming they are based on anything at all. This is another variation of (2).


Will put in the hard work to analyse the market and create their systems.


Will not let their emotions get in the way of trading, but will stick to their pre-defined plan giving clear entry, exit and money management strategies.


Will not be arrogant and therefore narrow-minded. Their minds will be open to new ways of thinking and adaptable as the market changes.


Will understand the forces that drive the market - seen and under seen, psychological and manipulative. They will understand which events are causally related, which ones do not have direct causal relationship and which are hiding under the guise of random events.

Let me tell you something, when I'm hiring traders the thing I look for is are they the sort of person that I could punch in the face and they would just sit there are carry on with the interview and not question why. That's quite extreme and a bit of funny thought but it sums up how the best traders can switch off their emotions.


This is what 90% of day traders can't do. It will be said that the same, old, stuff is being trundled out but I don't believe there is anything else that is so important as the Cold, Calm and Collected attitude to trading. Dominate emotions and you will become a survivor. The trading 'edge' will come with practice.


So what do you think, waiting for your comments below.

Dominik Stone

Disclaimer: Any Advice or information on this website is General Advice Only - It does not take into account your personal circumstances, please do not trade or invest based solely on this information. By Viewing any material or using the information within this site you agree that this is general education material and you will not hold any person or entity responsible for loss or damages resulting from the content or general advice provided here by Dominik Stone, it's employees, directors or fellow members. Futures, options, and spot currency trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This website is neither a solicitation nor an offer to Buy/Sell futures, spot forex, cfd's, options or other financial products. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in any material on this website. The past performance of any trading system or methodology is not necessarily indicative of future results.

High Risk Warning: Forex, Futures, and Options trading has large potential rewards, but also large potential risks. The high degree of leverage can work against you as well as for you. You must be aware of the risks of investing in forex, futures, and options and be willing to accept them in order to trade in these markets. Forex trading involves substantial risk of loss and is not suitable for all investors. Please do not trade with borrowed money or money you cannot afford to lose. Any opinions, news, research, analysis, prices, or other information contained on this website is provided as general market commentary and does not constitute investment advice. We will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information. Please remember that the past performance of any trading system or methodology is not necessarily indicative of future results.

© 2020 Copyright Dominik Stone International. All rights reserved.