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Why Do Most Day Traders Fail? (Overview)

Last Updated on 10 February, 2024 by Trading System

Day trading promises fast-paced action and high returns, so it isn’t strange that it attracts the attention of many new traders. However, it’s also a known fact that most day traders fail to make money and many even lose their trading capital in less than one year. The question then is, why do day traders fail?

The simple answer is that most day traders fail because day trading is difficult and finding an edge for discretionary day trading is almost impossible in today’s market. But beyond the issue of a profitable trading edge, most day traders fail because of other reasons, such as poor trading knowledge, not following a trading plan, using too much leverage, not keeping a trading journal, poor trading psychological skills, and many more.

In this post, you will learn

  • Who day traders are and what they do
  • Why most of them fail
  • What you can do to succeed as a day trader

Who are day traders, and what do they do?

Day traders are financial traders who open and close their trading positions within the same trading day. They can trade in the Forex, stock, cryptocurrency, or any other financial market, but the rule is that they don’t let their positions stay in the market beyond the day they’re opened.

In the Forex and cryptocurrency markets — which are decentralized and run continuously from one session (Asian, European, and American) to another, day to day — a day trader may choose to trade in only one session or multiple sessions. But before the day ends in their time zone, they close their trades. However, for exchange-traded security markets like the stock market where there is an opening and closing time for each exchange, a day trader trades during the market hours and makes sure they close their position before the closing bell.

So, day traders target short-term price movements and trade on the intra-day timeframes, such as hourly, 30-minute, 15-minute, 5-minute, and others. They have to use strategies that work on those lower timeframes, allowing them to enter and exit trades within a few hours and still make profits.

However, strategies with a verifiable edge within such a short time are difficult to find. Moreover, trading on those lower timeframes means that the market frequently prints new data, which must be analyzed immediately to know whether to close open positions or enter a new position. As a result, day traders are often glued to their trading screen for the greater part of the trading day. This often leaves them exhausted and prone to several trading errors that contribute to the high failure rate associated with day trading. But what specific factors are responsible for most day traders’ failure to make money in the market?

Why most day traders fail to make money in the market

There are many reasons why most day traders fail. From a lack of knowledge about the market and trade preparations to poor trading psychology skills, anything can make a day trader fail to make money from the market. Let’s take a look at some of the most common factors:

1. It is difficult to find a discretionary day trading strategy with an edge in the market

One of the most common reasons why most day traders fail is that they start to trade without having an edge in the market. To succeed in day trading, you must have some sort of edge in the market. Having an edge in the market means that your trade setup has a higher probability of a successful outcome, which could be in the form of a high (>50%) win rate or making more money from the few winners than you lose in the losers.

Obviously, no serious day trader would put their money on the line without being sure of having an edge in the market. But the truth is, many traders are unaware that the strategies they use to trade their money don’t have an edge or a real advantage in the market. They simply do the traditional technical analysis and place their trades, but the fact is that most technical analysis out there doesn’t work in their traditional form. They must be tweaked to the specific level that works in a particular market.

But what makes it more difficult to find a reliable trading edge for day trading is that the analysis and trading are done on the lower timeframes and price movements in those timeframes are mostly random. So, finding a strategy with an edge for discretionary day trading is near impossible. The best option is to use a systematic approach and learn how to build a trading strategy that doesn’t rely on your discretion.

2. Many day traders don’t have a trading plan

As with any other style of trading, a trading plan is very essential to achieve any success in day trading. Trading is a serious business that requires a long term outlook and a solid action plan, and day trading is not an exception. Moreover, day trading is like a full-time job, so it’s necessary that you know in advance what you’re going to trade, when you’re going to trade, and how you’re going to trade. The problem with most day traders is that they don’t have a trading plan before coming to the market

A trading plan gives the trader a general guide on what to do in every market condition; without it, the trader will tend to be switching methodology, market, and strategy all the time, which will have devastating effects on their trading performance because, for a strategy that works, consistency is key to success.

A trading plan should cover every important aspect of the trading process. It must specify the markets the trader wants to trade and the strategies they will use — with all their entry, exit, and trade management criteria. The plan should also state the timeframes the trader will use for their analysis and trading: will it be the hourly, 30-minute, or 15-minute timeframe? Furthermore, the plan should state the position size for each trade and the risk management parameters. Finally, it must include the parameters that will be recorded in the trading journal and how often they will review their trading record.

3. Some of them trade big position sizes

Another major reason for the high failure rate among day traders is that most of them trade position sizes that are, by far, bigger than their account sizes. They usually do this to increase their potential profits because the normal price movements in the intraday timeframe, which they trade, are small to offer them any reasonable profit in each trade. What they fail to understand is that in day trading, no one individual trade can make them rich; success is achieved in accumulating those small profits over a long time.

One problem that comes with using excessive leverage is that it increases their account risk (for example, risking 20% of the trading account in a trade) when they use reasonable stop loss levels. In order to reduce their account risk, some of them place their stop loss orders close to their entry price, which increases the risk of being knocked out before the trade plays out. At the end of the day, they are bleeding from accumulated losses.

4. Unrealistic expectation is a major factor

Many new traders expect too much from the market. Yes, the market indeed offers limitless potential for well, but that is just what it is — potential. In reality, as a retail trader, you are swimming against the sharks, so if care is not taken, you will actually be consumed. Making money from the market is very difficult and takes time. So, the primary expectation should be to survive long enough to know how to learn how to play the game.

But on the contrary, new traders tend to think that they would hit millions in a couple of weeks of trading. This mindset drives them to use excessive leverage or overtrade or trade without a stop loss. What normally follows is a devastating loss. Many of them blow their trading accounts in less than a year.

5. Many of them lack discipline

One primary feature of new day traders is a lack of discipline. They think that they can do anything and get away with it. Someone would enter a trade without a stop loss, or maybe, deceive themselves that they are using a mental stop loss. And, when the market moves against them, they become confused and frozen with fear, without knowing what to do — close the trade and accept the loss or wait for the market to reverse?

Most time, they fall into false hope, believing that the market would reverse and bail them out. As they wait, the market keeps moving against their position, and their account keeps going down. Eventually, they may close the trade after they have lost a huge portion of their trading account. Some may even continue to hope until they get a margin call.

On the flip side, it could be getting out of a winning position too early before the main move even starts. It could also be in the form of letting a profitable trade turn to a loss. The truth is, without the discipline to follow a specific plan, the trader will definitely lose.

6. Many new traders jump into day trading without learning the process

It is not uncommon to see new traders rush to bet their money in the market without knowing anything about the trading process. They don’t know what a trend is and how to identify it, and neither do they know how to identify a pullback, but they want to make money from the market. They believe that trading is easy, and that money can be made instantly in the markets. Essentially, they are gambling.

Trading requires a lot of hard work, and day trading requires extra hard work because it takes all the time. It takes a lot of work to learn what works in the market and what does not. After learning the basics, creating a trading strategy that has a chance of performing well in the real-market setting takes countless hours of research and testing, with many failed attempts. Trading is not an easy business; as a retail trader, you are competing with the sharks of the financial markets, so you must be ready for the fight.

7. Day trading is time consuming and stressful

As we stated earlier, day trading takes all the time. The market analysis is done on the intraday timeframes, so market data are printed every hour, 30 minutes, or 15 minutes as the case may be. So, day traders need to be around their trading screen all the time to analyze the new data. They are either interpreting the new information to know when to close their open trades or looking for new trading opportunities. This is why day trading is considered a full-time job.

Sitting in front of the trading screen all day can be quite stressful, and if the stress is not well managed, it can lead to many disastrous trading errors, such as the fat finger error, where a trader unknowingly enters a far bigger position size than intended. For example, one may place a trade for 1,000 shares instead of 100 shares.

8. Some trade for excitement

Some day traders are in the market to seek excitement. The excitement that comes from watching the market move in your favor after placing a trade, or watching the market turn and surge in your direction, turning your losing position to a monster. While having a positive outcome from your trades can be delighted, the essence of trading is not to get excited but to make money while preserving your capital. In fact, in the words of Warren Buffet, “The number one rule of the game is to protect your trading capital.”

Obviously, one of the dangers of seeking excitement from your trades is not being able to close a losing trade to avoid taking a loss — as that doesn’t offer the thrill the trader is seeking. The trader doesn’t realize that it is better to take a small loss than have a devastating loss. The worst thing is that once this thrill-seeking habit is formed, it is difficult to come out of it.

9. Most of them don’t know when the market conditions have changed

New day traders don’t know that market conditions can change and their once profitable strategies may no longer work well. They think that, once they find the one strategy that works for them, it will continue to work forever. But here’s the thing, no single trading strategy will ever work well in all market conditions — some strategies work well in a trending market and perform abysmally in a range-bound market, while some other strategies do the opposite.

Market conditions frequently change, and when that happens, a smart trader should switch to a strategy that is favored in the new market condition. In essence, a good trader must have more than one strategy. The trader should have at least one strategy for each of the different market conditions. But the key thing is knowing how to read the market condition so as to know when to switch to each strategy.

10. Many of them lack the necessary psychological skills

Day trading is not just about creating trading strategies and using their criteria to place trades. A key aspect of trading is mastering trading emotions, such as fear, greed, hope, despair, anger, and others. Without mastering these emotions, they can easily sabotage your efforts.

You may become afraid to take new trades or cut your profit short because of fear, while greed can make you jump the guns or leave a winning trade to become a loser.

11. Without keeping a trading journal, they can’t monitor their performance

Any serious trader needs a trading journal for taking records of their trades because it is very essential for tracking performance and identifying the areas that need improvement. Unfortunately, most day traders don’t keep a trading journal, so they don’t even know how their trading is going and whether there is a need for adjustments in certain areas.

Generally, a trading journal should include the following:

  • The date the trade was taken
  • Name of security
  • Number of shares
  • Description of trading signals
  • Description of the entry and exit signals
  • Stops used and reasoning behind them
  • Total gain/loss from the trade

What you can do to increase your chances of success as a day trader

While we have discussed 11 factors that can make a day trade to fail, all those factors point to one problem, not being prepared! Thus, the one major thing that can boost your chances of success as a day trader is to enroll in a day trading course where you will be taught how the market works and how to follow a systematic approach to day trading since discretionary trading no longer works well in today’s market. You need to learn how to create a strategy, convert it into a trading algorithm, test it on historical price action, and trade it in a live market.


Why is it difficult to find a discretionary day trading strategy with an edge in the market?

Finding a discretionary day trading strategy with a genuine edge is challenging because lower timeframes, where day trading occurs, often exhibit random price movements. Strategies must be fine-tuned, and many traditional technical analyses may need adjustments to suit specific market conditions.

Why do many day traders trade big position sizes?

Some day traders trade large positions hoping for substantial profits due to small intraday price movements. However, using excessive leverage can increase account risk, leading to significant losses. Success in day trading comes from accumulating small profits over time, not from one large trade.

How do market conditions impact day trading strategies?

Market conditions can change, affecting the performance of once-profitable strategies. Smart traders adapt by having multiple strategies suitable for different market conditions. Recognizing changes and switching strategies accordingly is essential for sustained success.

Why are psychological skills crucial in day trading?

Mastering psychological skills is vital in day trading. Emotions like fear, greed, and hope can negatively impact decision-making. Traders need to control emotions to avoid impulsive actions that could sabotage their efforts and lead to losses.

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