7 reasons why intraday traders lose money in the stock markets (2024)

FAQs

Why do people lose money in intraday trading? ›

Lack of trading discipline

This is the primary reason for intraday trading losses in the intraday trading app. Trading discipline has to focus on three things. Firstly, there must be a trading book to guide your daily trading. Secondly, you must always trade with a stop loss only.

Another reason why retail traders lose money is that they do not have an asymmetrical risk-reward ratio. This means they risk more than they stand to gain on each trade, or their potential losses are more significant than their potential profits.

Traders fail due to being undercapitalized.

Sometimes the market is easier to trade and you make money right away. But usually, there is a learning curve which means losing some of your capital at the start. After that learning curve, you still need enough capital so that the risk on any single trade is small.

The emotional aspect of trading often leads to irrational decisions like panic selling. When the market moves unfavourably, many traders, especially those who are inexperienced, tend to panic and exit their positions hastily. This panic selling often occurs at the worst possible time, leading to significant losses.

It is a high-stakes game where many are lured by the promise of quick riches but ultimately face harsh realities. One of the harsh realities of trading is the “Rule of 90,” which suggests that 90% of new traders lose 90% of their starting capital within 90 days of their first trade.

Intraday Trading can help you churn out huge profits, however, one should also remember that it is a highly risky task. It is said that almost 90% of people lose money in intraday trading. Most of the intraday traders lose money because they fail to understand the market movements and end up taking the wrong decisions.

Another reason why day traders tend to lose money is that it's very different from long-term investing. While traders take advantage of price swings (which means they have to make specific predictions), investors tend to buy a diversified basket of assets for the long haul.

The most common reason for failure in trading is the lack of discipline. Most traders trade without a proper strategic approach to the market. Successful trading depends on three practices.

Studies have shown that more than 97% of day traders lose money over time, and less than 1% of day traders are actually profitable.

Why day traders fail is mainly because they don't understand the ecology of the markets, have no game plan, trade too big, and don't know their risk tolerance.

What happens to most day traders? ›

The vast majority of day traders are unprofitable, and many traders persist in trading for years despite their losses. It is estimated that 80% of day traders quit within the first two years, and nearly 40% quit within one month. After three years, only 13% remain, and after five years, only 7% remain.

Day trading is a high-risk, high-reward strategy. If your decisions don't work out, you can lose money much more quickly than a regular investor, especially if you use leverage. A study of 1,600 day traders over the course of two years found that 97% of individuals who day traded for more than 300 days lost money.

Intraday trading is the most popular, yet data suggests that most intraday traders lose money. A 70 percent don't last beyond the first year, and 95 percent stop trading by the third year.

With a $10,000 account, a good day might bring in a five percent gain, which is $500. However, day traders also need to consider fixed costs such as commissions charged by brokers. These commissions can eat into profits, and day traders need to earn enough to overcome these fees [2].

The defining feature of day trading is that traders do not hold positions overnight; instead, they seek to profit from short-term price movements occurring during the trading session.It can be considered one of the most profitable trading methods available to investors.

Keep the Stop Loss Discipline as part of your Strategy.

Stop losses are a key part of any trade; every trader should use them. Use the right amount of leverage. If you are trading a financial instrument, you should use an amount of leverage suitable for your risk tolerance and experience level.

Is intraday trading profitable? It may not be at first, but with a good deal of patience and research it can be. Never wait to generate huge profits in just a single trade; instead plan multiple trades and earn small profits. Many times, traders tend to overtrade, and they end up in losses.

You should always set stop losses to help mitigate risk in your intraday trading strategy. If the stock price reaches your set stop-loss price, the position will be exited immediately. This action helps prevent significant losses from a sudden move in the wrong direction.

The zero loss strategy in Intraday trading is a risk management technique that aims to minimize or eliminate any potential losses in a trade . It involves setting a stop - loss order at the same price as the entry price , ensuring that the trade will be closed at breakeven if the market moves against the trade .