To the stock trading platform Etoro, they found that a whopping 80% of day traders lose money over the course of a year and the median loss is -36.30%. Also, 75% of all day traders end up quitting within just two years.
In 1999, The North American Securities Administration Association (NASAA) reported 70% of traders will lose nearly all their money. 
The rate of success can be sobering news for would be new day traders excited to get going in the markets. Which is the reason so many fail. They don’t prepare they just rush in with no trading education. If you jump into a the ocean looking for sunken treasure with no map you are not a shark you are more likely the bait.
Most day traders don’t really fail when they quit. They fail when they start trading with no quantified strategy with an edge. They fail a second time when they never correct this first mistake. Then after these first two mistakes they give up as their third failure.
Day trading is the method of trading where both entries and exits are taken between the opening and closing of the stock market trading day. For 24-hour markets it’s opening and closing a trade inside the one day time period. Day traders don’t hold a position overnight, they sleep with all positions closed.
Day trades can last seconds, minutes, hours, or all day. Day traders attempt to profit from intraday price fluctuations. Day trading requires concentrated screen time, a focus on real time price action, and the discipline of quick decision making with and edge created with speed of signal execution.
Why do most day traders lose money?
Most day traders lose money due to one or more of these four primary reasons.
- They have no edge in the market.
- They are undercapitalized.
- They risk too much on each trade.
- They don’t have the discipline to follow their trading plan.
Day traders that enter the market with no quantified edge will lose money over time as other more experienced traders will be on the other sides of their trades. A trading edge is simply a strategy that creates bigger wins than losses over a series of trades leading to a positive expectancy.
The key to an edge is a trading system that uses signals to create good risk/reward ratios with stop losses, trailing stops, and profit targets. These signals can be based on historical backtested price data or simply following momentum and trends. The higher the risk/reward ratio for a trading system the less the win rate must be to create profitability.
Day traders that trade on their own many times just don’t have enough trading capital to execute their system with the right diversification and position sizing. A day trader must have at least $25,000 to avoid the day trader pattern rule that limits activity. A day trader also needs margin to maximize their buying power and trade turnover.
Not having enough capital limits the returns a trader can make without creating dangerous leverage and position sizing. It’s much easier to make $1,000 as a 1% return on a $100,000 account than it is to make is to make $1,000 as a 10% return on a $10,000 account. Taking on too much risk to try to make outsized returns is a way to eventually lose an entire account. Prop trading firms fund traders with accounts large enough to do serious trading. Prop trading firms also have risk managers to oversee the levels of risk taken.
Trading too much on a single trade can also lead to emotions and ego and distort the ability to follow your trading plan from start to finish. creating the dangers of not wanting to cut a loss short or worse add to a losing position. The ability to follow a trading plan with discipline is a mental edge that few new traders survive long enough to develop.
What percentage of day traders actually make money?
Most of the numbers accepted in the trading industry put approximately 5% of day traders as successful at making money. Of course this is just the amount of profitable traders not the ones that make a living trading as that requires big enough returns on large amounts of capital consistently to pay all your expenses.
People think day trading is gambling and most dismiss it as impossible to do profitably. However, day trading success rates are similar to other professional endeavors like sports where millions play the game at the amateur level but only thousands of people make a living playing sports at the professional level.
Aspiring day traders will only get rewarded for the effort and time they put into it and the expertise they develop in doing it. It’s not for everyone but for those that love the game they can outwork and outplay the majority until they get to the top of their field.
It’s possible, many millionaire day traders have been verified. They act differently than the majority so they make money that others lose. The money flows somewhere and the winning day traders get their share. Just like in all fields the majority of the gains go the top winners.
Why do most retail traders fail?
The majority of retail traders approach trading with the wrong perspective. They don’t respect it as the professional endeavor it is as they can be blinded by the potential for making money. Since the barrier to entry as a trader is so low they don’t take the professionals they will be trading against seriously enough and learn some tough lessons.
Professional traders make money much like casinos and professional gamblers do, with a positive expectancy model. Professional traders know the market and they know their self and understand that through the wins and losses they will make a certain amount of money based on the cyclical nature of the markets and their own trading signals.
Most retail traders approach trading with bad mental models. They focus on opinions and predictions which have no edge and even a negative expectancy for their self and most people that give them based on track records. They also can approach the markets as gamblers with the odds against them as they execute trades that are purely random or worse based on their own psychology creating terrible timing.
Successful day traders are the ones that treat it as a professional career. The winners are properly capitalized, have developed a complete day trading system with an edge that fits them. Profitable day traders execute their strategy with disciplined consistency of signals and position size.