Why is the day trading success rate so low?
In: Economics
Stocks are generally looked at long term. Day traders don’t do this.
On a day-to-day basis, during the day, each stock is generally highly volatile. Its near impossible to predict the ups and downs of an individual stock during a single day. We can look long term, and generally the market goes up 8%-10% per year on average… but each day can be anything, and we don’t know what it is, so day trading simply has higher risk.
Now, there is a version of day trading that is successful, its called high frequency trading, which is a specialized method of investing thats better for its own question.
A lot of reasons really,but they can be summed up with, it’s really hard!
Honestly, the main reason that I’ve seen people fail is psychological. In order to do it as a career you need to be RUTHLESSLY honest with yourself about why you got into a trade, why you got out, when you got out etc. Most people have a natural disposition toward avoiding risk,so we bank winners too early, let losses run too long. And then after the fact,we convince ourselves it was for different reasons (read anything about cognitive bias).
But let’s assume you get passed that. From there it’s still no cake walk. Being consistently right is hard to do, and often day traders can be pushed out of good trades because they’re rightly being strict on their risk controls. Over the long term that should work in their favour, but the market can stay irrational longer than we can all stay solvent.
Lastly, trading goes in cycles. I really believe this. There’s times when it seems like you’ve got a magic touch and every trade is a winner. Then there’s times where, no matter what you do, you seem to lose. Many people can’t take those swings because until you’ve lived through several, you feel like the bad ones will never end.
So there’s lots of reasons really.
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