Deciphering the Difficulties of Making Steady Profits by Day Trading

Day trading is tough for novices who expect easy money

frustrated trader - why trading is so tough
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When you look at a price chart—whether it be a stock, foreign exchange, or futures chart—it looks pretty easy to make money. Investors might focus their attention on the big moves and think, "If I had gotten in there, I could have made a fortune." Adopting such a perspective can lead many people to think day trading will be relatively easy and a quick way to riches. While day trading can provide significant income if you know what to work on, for many people this path will be unprofitable.

Day Trading Success Rate

The number of people who are successful versus unsuccessful at day trading will not tell you why most people fail. It is important to understand that it is a challenge to turn a profit through day trading. Every day trader believes he can make money, yet about 95 percent of the people who attempt day trading do so at a loss. It is important to understand the risks that can lead to losses given the assumption that day trading should be easy.

Need for a "Robust" Method

One primary reason for losing money is the absence of a solid trading plan and strategy. Simply looking at a chart in hindsight is not an effective way to create such a plan. A robust strategy is one that can be used in all market conditions or informs you when to stay out when conditions are not favorable.

An effective strategy can help prepare you to take action before a profitable opportunity arises, not after. The idea is to uncover patterns and trends that point to a trading opportunity that could deliver a positive return. Research is necessary to identify performance factors related to a stock or segment of stocks. Without such research, your results might largely be determined by chance.

Taking Time to Practice

Another obstacle is that novice traders might not understand that trading takes time to learn. Resources such as discuss some of the more prominent trading misconceptions that beginners may have.

Putting in a few hours of research without consistently committing time to day trading will not make someone a successful trader. It will be necessary to practice while maintaining another job. It is highly unlikely for a day trader to produce any income from the practice when they get started. Most day traders do not see their efforts pay off with profits for six months to one year from their start date. 

Whims of the Market

There are numerous reasons why the market can be difficult to gauge and navigate. Taking time to understand what can trigger shifts in trading activity can better prepare you to respond to those changes. 

  • You need to control risk in case you are wrong about the direction of a trade, which means putting a stop loss on your trade somewhere. This will give you an opportunity to react if the stock suddenly drops. Think of it as setting a threshold to help mitigate the amount of money you may lose while pursuing trading opportunities. 
  • It is necessary to understand that you cannot always get the exact price you want when trading. Heavy trading activity might push a price away from your precise target before you can react. You can choose to skip what might still be a good trade or accept the less than ideal price. Both options will reduce your theoretical profit on the trade. Even if you use limit orders, you may only get filled on part of your order on winning trades (market runs away before filling the whole order), but end up with full positions on your losers (price is moving against you so you always get your full order). 
  • The market is entirely composed of other people trying to make money or fend off losses (hedgers). People who are very good at trading look to take advantage of the orders that are placed by inexperienced traders. Veteran traders look for prices they believe allow them to take leverage some potential in the asset that others have overlooked and will provide a good entry or exit.

The Personality Factor

The desires and intentions of the day trader can substantially influence the outcomes of their efforts. A bit of success can lead to greedy actions that stray from a trading plan. This can include taking action too soon or holding on to a profitable gain for too long. Either scenario can mean losing out on the profits that might have been claimed. Fear can likewise cause a day trader to hold back too much when an opportunity is in the making. They might also sell in a panic in response to breaking news without taking into account all the factors at play.

A benefit of forming a solid trading strategy is that it can keep you focused on your results without being swayed by emotions.