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Most day traders end up losing money over time. Here’s why.

Day trading has the potential to yield incredible profits, but without a time machine, you’re unlikely to achieve them.
Credit: corlaffra / Adobe Stock, Vincent Romero / Big Think
Key Takeaways
  • From movies like The Wolf of Wall Street to Robinhood commercials, it’s often advertised that you can make big money through trading the markets.
  • It might sound as simple as “buy low” and “sell high,” but the reality is that the vast majority of traders end up losing money over time.
  • Here’s why day trading is an extremely difficult pursuit, and what’s likely to happen when inexperienced traders get in over their heads.

The goal of trading is deceptively simple: buy low and sell high. Traders that manage to do that by correctly timing the markets will net a profit, and all they had to do, really, was press a couple of buttons on one of the many digital exchanges where you can trade stocks, currencies, cryptocurrencies, and other assets nearly instantaneously.

It sounds easy, but the data shows the opposite is true: The vast majority of traders end up losing money over time. A report from the investment platform eToro suggests that 80% of its users lost money over a 12-month period. Other reports offer slightly different numbers, but none come close to suggesting that a majority of traders net a profit over long periods of time. 

Day trading is a dangerous game. Inexperienced traders can quickly get in over their heads, and even those who are highly skilled often lose significant sums. Let’s look at how day trading works and what makes it so risky.

How day trading works

Executing a trade is as simple as pressing a few buttons. In theory, all you have to do is put your money into assets that will increase in value, then sell them when prices rise to make a profit. Most often, traders invest in stocks, but the same principles can be applied to various assets, including foreign currencies, commodities, and cryptocurrencies.

Predicting an asset’s price movements is about more than just your gut instinct. Most traders use complex technical indicators to make their predictions, such as by noting changes in a moving average (the average price of an asset over a certain time period). TradingView, a platform where traders can create custom charts of assets, offers users more than 100 technical indicators, ranging from simple moving averages to complicated tools like Fibonacci projections, Gann Fans, and Ichimoku Clouds. If you’re struggling to understand what any of that means, you’ll see why most beginners run into trouble.

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. They’ve got time and diversification on their side.

It’s a much safer way to invest in the stock market. After all, while it’s tough to predict what one asset will do in the short term, the general direction of the stock market has always been upward over time.

Risks of day trading 

Day traders spend a lot of time trying to understand complex patterns and trading strategies, but no matter how long you spend studying or how good you get at trading, the chances of you being right aren’t particularly high. One study found that even market “gurus” only get it right 47% of the time.

Some did slightly better than others, with the best pundit achieving a 68% accuracy rate (and the worst an accuracy rate of 22%). Success rates among average traders are even lower, with some estimates suggesting the number of people that lose money is as high as 95%.

The decline in value of an asset isn’t the only place you could lose money. Regardless of how your assets perform, you have to pay transaction fees and commissions — these add up over time. There’s also tax to consider, which can get complex and catch people off guard. If you make money on a trade, you have to pay tax on it. Yet the wash-sale rule says that if you trade a security at a loss and then buy a similar security less than 30 days later, you cannot make the loss a tax deduction. 

Plus, while day trading isn’t a scam, many scammers prey on beginners. You need to know how to identify and avoid them.

Time commitments 

Day trading is not only incredibly risky, but it’s also a huge time commitment to reach the point where you have a shot at being profitable over the long term, due to the massive learning curve. It’s certainly not as simple as taking a quick online course. Just as it supposedly takes 10,000 hours to master crafts like sports or playing a musical instrument, the same applies to learning how to trade. 

Even then, you can’t put in the time upfront and then sit back and relax. Traders need to continually monitor the markets and keep up with the news to make predictions about what will happen next. This is extremely time-consuming.

Media portrayals of day trading may make you believe that you only need to work for an hour a day and then sit around raking in the cash, but the reality is far less glamorous. Think hours upon hours of staring at lines on a screen, then spending most of your downtime studying the markets.

As a part-time trader posting as responseBot indicated on the Fragile Deal forum, “[Being a successful trader is] more than a full-time job, just on improving and researching their trades. Attention to detail is often very important. A part-time commitment is quite unlikely to succeed.”

A full-time trader who goes by the handle apo99 on the Elite Trader forum spoke about the stress that comes with day trading:

“My biggest fear is that one day the market or the way these small cap stocks are priced will dramatically change and I won’t be able to trade the way I do and will never be able to stay consistently profitable. I don’t want to be a 35 [year old] trader who loses his edge or blows out and then becomes unemployable or has no other skills.” 

The trader says he “started with a small account 12 years ago out of school, ran it up from 10k to 700k” before “almost going bust last year.”

Stress and psychological burdens

No matter how talented or clever you might be, losses are practically inevitable when day trading. 

Trader apo99 at the Elite Trader forum noted the difficulty of making a mistake as he suffered “a 200k loss [during 2022] in 2 days, took a huge option trade and screwed up, something I had no business doing.”

At all skill levels, trading can be a stressful activity. One study found that even professional traders experienced heart palpitations when the market was particularly volatile. Over time, chronic stress can lead to even bigger problems, from increased risk of heart disease to anxiety and depression (though the research on traders specifically is limited). Then there are the usual health problems associated with too much sitting down and staring at screens.

Big losses can have negative psychological effects on both inexperienced and experienced traders, but losses are likely more common among novice traders. In recent years, there’s been a massive influx of new traders who have tried their luck trading cryptocurrencies and stocks on digital exchanges. 

Some exchanges offer financial products that can make trading extra risky (and arguably more addictive), such as leverage trading, which gives traders the chance to trade with 10 or even 50 times the amount of money in their account. The catch? If the trade doesn’t play out correctly, even by a little bit, their entire account can get liquidated in an instant. 

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The Twitter account Coinfessions, which publishes anonymous stories from people in the cryptocurrency space, provides an idea of how quickly things can go south for inexperienced traders:

“I put 50k in a cursed altcoin and never took profit,” reads one post. “Since then I tried to make it back [through leverage trading] and lost it all.”

“I got insanely greedy and opened up a 50x levered [short position] on Bitcoin at $17,800,” reads another. “Lost it all. Literally a clean slate.”

“Last year I made 90k from reselling shoes, then lost 83k from leverage trading and options through the past 10 months,” reads another. “My parents still think I’m their successful little entrepreneur. Little do they know I have trouble sleeping at night knowing I threw away my college tuition.”

Talk about a sobering reality.

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