Why It Is So Hard to Make Consistent Money Day Trading

Day trading is tough, here's why

frustrated trader - why trading is so tough
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When you look at a price chart--whether it be a stock, forex or futures chart--it looks pretty easy to make money. Our eyes gravitate to the big moves and we think "If I had gotten in there I could have made a fortune!" Looking at charts in this way leads many people to think day trading will be relatively easy and a quick way to riches. While day trading can provide a great income if you know what to work on, for many want-to-be-traders the path will be unprofitable. Here's why.

Day Trading Success Averages

How many people are successful and unsuccessful at day trading won't tell you why most people fail, but it does let you know the odds you're up against. No one starts day trading to lose money; people only do it if they think they can make money. Yet about 95% of people who attempt day trading will lose money. Something is going on here. Why do so many people lose money when it looks so easy?

Lack of "Robust" Day Trading Method

One primary reason for losing money is lack of a solid trading plan and strategy. Looking at a chart in hindsight and saying "If I got in there..." does not count as creating a robust strategy. A robust strategy is one that can be used in all market conditions, or tells you to stay out when conditions aren't favorable.

A robust strategy tells you what to do before a profitable opportunity, not after. If you view charts in hindsight what would have caused to you get into that nice trading opportunity? There is no way of knowing an opportunity is coming unless you have researched various factors and found that, more often than not, when those factors align they present a good trading opportunity. Until you have found and researched those factors, and proven their reliability, any trade you take is a pure gamble.

You have no idea what the market will do. If you develop a strategy that tells you when to get in and out of positions (and when to avoid positions)--based on researched factors aligning--then you'll know the probable outcome of your trades. Only then can you start to gain consistency.This is covered more in depth in How to Day Trade Stocks. 

Lack of Practice and Time Commitment

Another obstacle is that want-to-be-day traders don't understand that trading takes time to learn. Marcello, the founder of TheDayTradingAcademy.com discusses this in a short video on the biggest trading misconceptions.

Putting in a few hours of research isn't going to make someone a successful trader. It takes loads of study and practice, typically while working another job because day trading won't produce any income during this learning phase. For most day traders it will take six months to a year, putting in several hours of practice and study a day, before it starts to pay offin the way of profits. 

Other Reasons Trading is Tough - The Market

There are numerous reasons why trading is tough; here are some of the main ones. 

  • You need to control risk in case you're wrong about the direction of a trade, which means you must put a stop loss on your trade somewhere. That means you not only need to get the direction right, but also need to get the timing right. Enter too early and the price could fluctuate a little causing you to lose money before the move you're expecting even happens. Wait too long and opportunity to trade is gone. 
  • As just discussed, trading requires precision--you need to know exactly where to get in and out, and when. You can't always get in at the exact price you want though. Even in heavily traded forex pairs, stocks or futures contracts, we have what is called slippage. When lots of people (or even a few)  want into a trade at the same time the price is instantly pushed away from that price. You have two choices: skip the entry and possibly a good trade, or accept the worse price. Both reduce your theoretical profit on the trade. This may also happen when exiting a trade; when you go to get out, there may not be liquidity at the exact price you need it. You're forced to exit at a worse price than anticipated. Therefore, on both sides of the trade you may be forced to accept smaller profits and bigger losses than you originally bargained for. Even if you use limit orders, you may only get filled on part of your order on winning trades (market runs away before filling whole order), but end up with full positions on your losers (price is moving against you so you always get your full order). 
  • As just discussed, only a few traders can get the best prices when a move is starting. Everyone else is forced to take a worse price. Since a move in one direction doesn't last forever, the later the entry into the move, the less profit potential. Assume the price of a stock moves higher, pulls back and stalls at $9.90. Some trades start to think this is a buying opportunity as the price is likely to rally up to $10 again. Assume at each price level there is only 100 shares. The first trader buys 100 shares at $9.91, now the offer is $9.92. The next trader is forced to buy at $9.92, and the next at $9.93. The further the price rises the less profit potential and more risk for the who are late getting in. Only a few traders (or one, if the first trader(s) bought at multiple levels) can get the great prices, and that is typically going to be the traders with the most experience. Prices can move significantly in seconds, so any hesitation can mean the difference between a great price and a horrible one.New traders with a bit slower reflexes and less skill are always going to get in too late, into trades that have little chance of a producing a profit. This scenario plays out every second of the day on intra-day charts, and also over weeks, months and years on the longer-term price charts. 
  • The market is entirely composed of other people trying to make money, or fend off losses (hedgers). People who are very good at trading are looking to take advantage of the orders which are placed by inexperienced traders at prices the experienced trader thinks provide a good entry or exit. Usually they're going to be right, and the money of the inexperienced trader transfers to the more experienced trader.

Final Word On Why Trading Is So Tough

There are many reasons why trading is hard. This list just scratches the surface of some of the structural (market) reasons why trading is tough. In addition there are psychological issues which can stand in the way of success--such as greed which can cause us to deviate from our trading plan, enter trades too early (eager) or hold onto a profit too long giving back what we made. We also face fear which can cause us to skip great opportunities, or panic out of a position right before it moves in our favor.

Trading is tough; the only way to become successful (like any field) is with hard work, lots of research and lots practice...and start in a demo account so you don't go broke.