5 Reasons Why Most Day Traders Fail While Day Trading | FundTheTrader


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5 Reasons Why Daytraders Fail

One of the most attractive professions has been and will always be day trading. The adrenaline rush of making a windfall through trading is mind boggling and highly addictive.

When the concept of day trading is properly introduced to someone, they understand the power it has. Generally they decide to jump straight in without any formal practice or understanding. At least that’s what I did when I first started.

For those starting out, the downsides of trading in the markets seem irrelevant. Why? Fear of Missing out as well as the supernatural belief that they’re immune from any bearish movements.

To put things into perspective, we’ve pointed out the top 5 reasons why traders fail

REASON #1 – Day trading Speculation & Gossip
REASON #2 – Insufficient Daytrading Capital
REASON #3 – Bad Market Timing
REASON #4 – Poor Risk Management
REASON #5 – Financial Markets

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REASON #1 – Day Trading Speculation & Gossip

We as humans have an intense need to express ourselves.
As traders, this expression translates into speculation!

Why? Because the majority of traders don’t have the fundamental or technical knowledge required to consistently succeed in the markets.

Couple this with another phenomena that humans have engaged in through the ages, Gossip!

Ironically, gossip plays a role in hitting the jackpot from time to time.
More often than not, you end up losing because your wins have been on shaky ground.

When people trade based on speculation and gossip, It’s easy to see why the majority of traders fail

RECOMMENDATION: Equip yourself with the knowledge before jumping into the deep end
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REASON #2 – Not Enough Day Trading Capital

We all want a piece of the American Dream.

As the old saying goes – It takes money, to make money
For most, there’s barely enough money to pay the bills.

So then, what do beginner day traders do?
They enter and trade in the markets without sufficient capital.
The lack of funding makes people take unnecessary risks.

If you plan on actively trading, make sure capital isn’t one of your problems.

To become a funded day trader, you can start by reviewing the below funded programs

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  3. TopStep
  4. Fidel Crest
  5. Liberty Market Investment
  6. Uprofit Trading
  7. Audacity Capital
RECOMMENDATION: Learn about firms that fund profitable traders

REASON #3 – Bad Entry & Exit Timing

Everyone knows to succeed, “Buy Low, Sell High”
Much easier said than done.
Ask any experienced trader – What’s the hardest part of trading?

The answer is almost always the same.
Knowing when to enter and exit a position.
A vast number of books have been written on charting techniques and strategies for this very topic.

Skyrocketing prices push emotional traders to enter a long position at the wrong time.
Greed keeps the discipline-lacking trader in a position for too long.
Fear pushes the risk-averse trader out of a position too quickly.

All this is very familiar to someone who has traded before.

RECOMMENDATION: Before risking your capital, practice trading on a simulator
Check out TradingSim

REASON #4 – Poor Risk Management

The main purpose of daytrading is to lower risk.

How so? The shorter the time period money is invested in the markets, the less market exposure risk.
Often day traders enter a position and refuse to exit even though they’ve lost more than their trading plan allows.

Insurance companies thrive by controlling risk and increasing group experience. Why would day trading be any different?

Without proper risk management techniques, traders are guaranteed to fail in the long run.

RECOMMENDATION: Create a trading plan listing out maximum allowable loss per position
Help me start a trading plan

REASON #5 – Financial Markets

Time has shown us that supply and demand shift back and forth.

Do you remember taking that boring economics course illustrating supply and demand charts?
If not, here goes my feeble attempt at explaining the basics.

When demand is increasing, supply slowly starts to increase until it satisfies demand or demand stops. Demand can change in 1 minute, 5 days, 10 weeks, 1 year! You get the point.

Traders try to control demand every time they enter a position.
Controlling demand is a losing game, which is why most traders fail.

Day trading should be more about controlling your risk rather than controlling demand.

RECOMMENDATION: Control your risk exposure to the fluctuating demand
Learn more

DISCLAIMER: This blog should in no way be confused for financial advice.
This is for information purposes only.
It is not intended to be financial advice, nor should it be taken as such.
Please consult a financial advisor for your specific situation.


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