Why Do Amateur Stock Day Traders Usually Lose Money?

Published in

InsiderFinance Wire

4 min readSep 20, 2023

A sobering fact about day trading stocks is that only about 36% of day traders make money. 64% lose money. These numbers apply to folks who are still actively day trading. The numbers are worse for beginners who typically drop out after a series of losses. Why do amateur stock day traders usually lose money? How can this be prevented? Day trading is a business. Success comes from learning how to trade and then following through with discipline in entering, managing, and exiting trades like we teach at DayTradeSafe.

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The Risks of Day Trading Stocks for Amateur Traders

Folks who get into day trading expect to make money. Too many have the mistaken belief that day trading is easy and that profits come quickly. Unfortunately, a trader may not use a proven system. They may fall prey to fear and greed. They may accept too great a risk in search of fast and huge profits. Ignoring the risks of day trading stocks generally means falling prey to those risks. A smart first step is to practice using simulation trading until profits are routine and then, and only then, risk one’s own money in live trades.

Common Mistakes That Lead to Losses

The most common mistakes that lead to losses for amateurs day trading stocks are the most basic. Beginners often have unrealistic expectations. They start to trade without a solid plan. They risk more than they can afford to lose. Beginners often use leverage in trying to make a killing and then lose all of their trading capital. Rather than cutting losses, an amateur stock day trader may “double down” like with a trip to the casino and multiply their losses. All of this can be avoided by learning the necessary skills and discipline before risking any trading capital.

Ways to Reduce Risk and Increase Chances of Success

The fact of the matter is that there are people who make money day trading stocks. And it does not have to take years and years for this to happen. A necessary skill when day trading stocks is setting stop loss and take profit points with every trade. This protects the day trader from large, rapid and unexpected price movements. By learning how to choose trades, enter them, manage them, and then exit, an amateur day trader gains the means to reduce risk and increase chances of success.

Analyzing the Market Before Investing in Stocks

Profits in day trading come from price movements in the market. Being able to accurately predict if a stock price is going to rise or fall is a necessary skill. So is choosing the appropriate way to trade the situation. Over the long term markets are driven by fundamentals. Companies with strong financial reports see their stock prices go up. Macro factors like the state of the economy and interest rates drive the market up or down. Over the short term prices fluctuate based on market sentiment. Traders use technical trading indicators to analyze these price movements.

Strategies That Can Help Mitigate Potential Losses

To help limit losses a day trader needs to be clear about when to buy and when to sell a stock. These are the trade entry and exit points. These points are defined by the technical indicators that a trader uses, such as moving averages. Because the market can fluctuate significantly, day traders commonly enter orders for when to sell a stock that they have just purchased. The stop loss order is a price slightly below the entry point and the take profit order is for a price somewhat above the entry point. These need to be set in such a way that the trader is not immediately ejected from the trade but so that they will capitalize on a significant upward price movement and not lose everything if the market suddenly tanks.

Knowing When to Exit a Trade and Minimizing Losses With Short-Term Gains

Just like Rome was not built in a day, a lifetime of day trading profits do not happen in a single day. Successful day traders in stocks, foreign currencies, and commodity futures take profits from the small ups and downs of the market. They do this again and again throughout the trading day. They always use stop loss orders to limit risk. They do not let fear and greed drive them. Rather they learn discipline in placing, managing, and exiting their trades day in and day out. When the market is heading up or heading down a day trader will generally not try to stay in a trade for the duration of the bull or bear run. Rather they will enter and exit with short-term gains and always be out of their trades at the end of the session!