If you have been around trading very long, I am certain that you have heard the statistics regarding the failure rate of new traders. Most figures say that about 90% of all traders fail and give up within the first 12 months, but I think the number is probably higher than that in the end. Today we are going to talk about why day traders fail and how not to be on the wrong side of those statistics.
There are many reasons why day traders fail, but the most important reason in my opinion is unrealistic expectations. Most newcomers view trading as a get rich quick plan. An easy way to make their riches while doing nothing more than pushing a few buttons on a computer. Unfortunately, that one thought process leads more traders to failure than any other. Trading is not a get rich quick scheme! It is a job and a profession like any other, and you can not reach the pinnacle of success in day trading any easier than you can become a doctor, lawyer, airline pilot or professional athlete.
While all of those professions pay well, none of them are easy to break into without years of hard work and dedication. Most require a large amount of schooling, and even for the athletes, who are often born with their gift of athleticism, they still have to put in countless hours of practice to hone their skill and move to the top of their game. All well paying professions take many years of hard work, dedication and sacrifice, and trading is not any different. A medical doctor spends a minimum of 10 to 12 years in school learning alone, and a lawyer must have 6 to 8 years of school, but then must study even more to pass a state bar test before they can even practice for pay.
Understand that if you want to be a day trader, you are going to have to spend many hours on a simulator practicing and getting real time experience watching prices print to a chart in real time. Then, you are going to have to spend even more time studying those charts and your daily simulated trading results. Trading alone and watching charts print does not really make you a better trader. What makes traders better is the study of their trading and their charts. Studying patterns and learning how price action really works and what is really taking place on the chart.
The supposed random walk theory has some validity, but it is a weak one at best. Once you learn to understand price action and how it works, you will soon realize that prices are not really all that random after all and that you can indeed predict where prices are going in the short term with a great deal of accuracy. This is really the key to success, and no indicator or computer program can tell you anything more or even as much as the ability to understand and read a price chart. If you are searching for the holy grail, then stop wasting your time and money and learn to read a chart and you will find what you are are searching for when it comes to trading success.
Another reason most traders fail is because of the lack of information that is available to them. The majority of what you will read and learn about trading is all completely wrong. While most trading information is simply incorrect, it is not because people are intentionally trying to mislead you. Like anything in life, there are always a few shysters out there that have only one goal in life and that is to separate you from your hard earned money and put it into their own personal wallet. Most however see a need and they are attempting to fill it with what they think is good information. They just do not know any better themselves, so they continue the cycle of bad information.
It is truly amazing how many books and courses are out there that are based on accepted trading strategies that are just wrong and that simply do not work in the end. However, because it is so widely accepted as the standard, this information becomes ingrained as the holy grail in trading, when in the end, it is not worth the paper it is printed on or the video it is recorded on. Stop searching for the holy grail and start studying your charts and you are on the right track and it will not cost you a fortune to learn either. Yes, it is a long journey, but the rewards are great for those that are dedicated and persevere through the ups and downs of learning to become a profitable day trader.
Another unrealistic trading expectation is that you can take a course, read a book or manual on trading, and be ready to trade live afterwards. This is the quickest way to end your new career, because I can assure you that you will be separated from your hard earned trading capital very quickly if you attempt this feat. I do not care what your IQ is, what your education level is or even if you have a photographic memory, you will fail if you go live before you truly understand how prices work and if you start before you have a great deal of real time experience simply watching charts print.
Think about it in these terms. No matter how educated or smart you might be, do you really think you can read a book and step into the cockpit of a helicopter tomorrow and then fly it safely? Add to this fact that other people on the ground and in faster planes than you are trying to shoot you out of the sky as you are just trying to get airborne. How long do you think you would last if you could even get off the ground at all? Not long, and your trading life will be just as difficult and just a short if you attempt to trade before you get training and create some skills at it. No matter how many times I say this, people still do not get it or listen. You will not hear this in most trading circles, because most of them want to sell you something, and when they tell you the real story, you are less likely to buy their goods.
There is no holy grail in day trading! There is no short cut to learning how to day trade! Day trading is a skill that requires the ability to read a price chart quickly and accurately. This is a skill that is not learned quickly or easily, even by very smart people. The skills that lead to success in reading a price chart go against common sense really, so even a lot of common sense and practicality will not help you to become a profitable day trader. In fact, I would argue that good common sense actually works against your success! You might have heard the comments that being a contrarian actually works to your advantage in trading, and there is a lot of truth in that statement. It does not necessarily work in the ways you might think, but there is indeed a great deal of truth in the fact that you must think like a contrarian when it comes to reading a price chart.
In summarizing why day traders fail, it all boils down to unrealistic expectations. This is a skill that must be learned, and it is one of the most difficult skills one can master. It is not a get rich quick scheme, and if you think it is and approach it as such, I can all but assure your failure. This is a job, just like any other job, although a difficult job to learn, so plan to pay your dues in time and effort. Stop jumping from one strategy to the next, and concentrate on only one thing, learning to read and understand price movements as they print in real time to a chart, because that is the only way to master this profession and make it as a day trader.
Before you can start to find success as a day trader, you must truly understand why day traders fail. I have spelled it out for you in plain English right here in this article and I have given you the holy grail that most every trader is searching to find. It is up to you and you alone as to what you do with this information going forward!