Warrior Trading Blog

5 Reasons Why Day Traders Lose Money

Why day Traders Lose Money

What’s up, everyone? All right, so in this episode I’m going to break down for you guys the five reasons why most day traders lose money. If you’re watching this video, there’s a good chance that your part of the nine out of every 10 traders out there who is consistently losing money.

In fact, they say that only 10% of traders will be consistently profitable enough that they can make it their full time living. I like to say that day trading is the hardest, easy job in the world. And what I mean by that is that this being able to trade on my laptop from a hotel room, from bed, from almost anywhere in the world, as long as I’ve got an internet connection, it’s a pretty easy job. It’s awesome. I’m not hammering roofs in August and I’m not out on the highway in 10 degree below weather in the middle of January.

This is a pretty nice job. I really only work for about an hour a day. From 9:00 AM, nine to 9:,30 I prepare my watch list, the market opens at 9:30 Eastern standard time and by 10, 10:30 AM, I’ve usually hit my daily goal and I’m done, I’m ready to walk away. So with an hour, hour and a half a day, last year I made over $350,000 and it wasn’t the best year I’ve ever had. It was a good year, but it wasn’t the best. So it’s a pretty easy job in a lot of ways, but clearly it’s very hard in some aspects because nine out of 10 traders fail. So what we’re going to talk about are some of the reasons for those failures in this episode right here. Now what I’ve done for you guys is I’ve actually put a link right in the description, which is a masterclass of a panel style interview that we hosted between me and about eight of my students who have become successful traders.

And what we did was we hosted this panel style interview for our inner circle students during a seminar in front of about a hundred people. And so we allowed people that were out in the audience to ask questions about, Hey, what was your turning point? So asking me, or asking Selena or asking Roberta, what was your turning point? What was the point where things really started to click? Or, what was the most important thing you learned as you were getting started trading? What is the basis of your risk management? What’s your strategy? Everything else. So I want you guys to click that link right down there and download and stream that masterclass. I think you’ll really enjoy it. If you’re one of the traders out there right now that’s struggling, you’re not where you want to be, watch that masterclass because it’s going to give you a sense of where a few traders who are really in your own shoes, not that long ago, what they had to do to make that transition from struggling, to becoming more consistent and generating profit on a more consistent basis.

All right, so why don’t we get into this episode right here. Make sure you download the masterclass. And right now we’re going to talk about the five reasons that traders fail, the five reasons that most traders are going to struggle to turn a profit. Number one, trading with real money too soon. This is such a common mistake and I did it myself. You jump into the deep end, overconfident, you start sinking and next thing you know, you could essentially ruin any opportunity of being a successful trader barely before you’ve even gotten started. I think it’s so typical of us in general to be overconfident and to think that, “Okay, yeah, nine out of 10 people fail at this, but I’m going to jump in, you know, off the street with basically no training, no prior experience, and I’m just going to throw some money at the market and I’m going to be the one out of 10 that’s successful.”

That’s essentially gambling because you have nothing to base the belief that you’re going to be successful, nothing at all. I want you to watch this little clip. This is a clip of one of my students who was talking about this very… This exact thing of trading the real money too soon. Did you train on the simulator when you got started?

I only traded in the simulator long enough to know how to take a trade because the market was of course brand new. So I only wanted to know what are the actions that I must take in order to facilitate the trade. And I didn’t learn the strategy in the simulator. I jumped in with more money than I should have been risking for my skill level and created a lot of pressure for myself and also got the trading bug, I was addicted, I’m 12, 14 hours a day. All I wanted to do was education and back testing and to watch the market play out. And so I didn’t do any of the other work that I needed to do to continue to bring it in common.

That extra pressure on me to have to make that trade, which introduced me very quickly to the emotional element of trying to trade to make up for yesterday’s loss. And with that desperation making poor choices, and when I was able to come back from all of that and really just learn what was happening to me in the fight, flight, freeze and where the emotional responses come into trading. I really did go back and follow the recipe for making the cake. Where at the beginning of that, I was throwing in, “Oh, okay. So this recipe calls for flour and salt and soda and strawberries,” and I throw the strawberries right on top and didn’t do the puree or blend and mix in the way that it needed to be. So I was just kind of throwing it all in the pot and hoping it came out and it was a black cake, a lot.

So before you trade with real money or if you’re currently trading real money, I really encourage you to think twice about it and to step back off of that and focus on trading in a simulator. One of the reasons that we have a license agreement with one of the biggest trading software trading simulator providers is because of how important it is for me that all of my students trade in the simulator before they ever trade with real money. You have to prove that you have what it takes to be profitable. Let’s be honest, if you can’t make money in a simulator, you have no business trading with real money. If you’re a aspiring pilot and you can’t land in a flight simulator, you sure as heck better not be flying a real plane, right? It’s the same thing. It really is, it’s so similar. And so, one of the things that I really encourage you to do is of course trade in a simulator, whether it’s our simulator or a different simulator out there, that’s fine.

And what you want to analyze are three core components of profitability. You want to analyze your profit to loss ratio, so that’s your average winners versus your average losers. You want to analyze your percentage of success. Out of a hundred trades, how many are winners, and how many are losers, and then you want to look at your consistency. How many days are you green, how many weeks are you green, how many months are you green? And generally, until all three of these components are that of a profitable trader, I’d call it the profit trifecta. You shouldn’t trade with real money. Once you’ve got at least three or four weeks of green trading, you’ve got good profit loss ratio, your accuracy’s good and you’re consistent, then okay, dip your foot in the water with real money and see if what you’ve been doing in the simulator translates. Now I’ve met people who have found ways to kind of hack the simulator so they can be incredibly profitable in a simulator, but in a way that’s not realistic with real money.

So even when you do make the decision to switch, you got to still dip your foot in and make sure what is working in SIM, works with real money. And as long as you’re trading a strategy like mine, which is based on trading momentum stocks, gap and go or maybe trading reversals, then you’re trading something in a simulator that you know someone else is trading with real money and that’s important. The second reason most traders fail, they open brokerage accounts before they really know what they’re doing and so that means a lot traders will end up opening a brokerage account with a broker maybe right now that offers free commission, maybe a broker like Robinhood or something like that, without realizing that those brokers were never designed for professional day traders. So it’s very rare to see a full time profitable trader, one of the 10% trading at one of those brokerages.

Although you can day trade on your phone, it’s not really the tool that you want when you’re trying to make a career out of this. This right here, this is a laptop with two external monitors. You don’t need all of this, but this is the type of setup that you want and you’re just not going to be able to do that with some brokers like Robinhood. Now I’ve got a list of the brokers that I really like and I’ll put them write that down in the description. They’ll be a link for them because if you use one of those brokers, you’re going to be using a broker that really has tools that will allow you to day trade.

You can get in quickly, get out quickly using hotkeys. What’s a hot key? A hotkey is when you press a button, like let’s say shift one. If I press shift one, I just bought a thousand shares, just like that. And if I press control Z, I sell my full position just like that. And you put little stickies on your keys and then you’ll remember when you’re in front of your brokerage account, that pressing those buttons executes those orders.

Think about how much that empowers you. How quickly you can trade the markets. A lot of brokers, they don’t have it, right? So if you don’t have hotkeys, well all of a sudden you’re at a disadvantage and you really don’t want to be at a disadvantage, you’re already trying to do something that’s very difficult. So you want to put the cards in your favor, right? You want to set the bar really low, so it’s easy to be successful. And that means when it comes time to opening a brokerage account, which means you’ve traded in a simulator improving profitability, then you choose one of the brokers that caters to active traders. Number three, no strategy.

If you don’t have a strategy, your odds for success, they’re basically zero. You will not be successful longterm. Now a lot of beginner traders, when they come into the market, they think, “All right, I’m just going to buy a little of this and a little of that. I’m going to buy some Apple. I’ve got an iPhone, I like Apple, I’m going to buy some Netflix ’cause I like watching Netflix, and I’m going to buy some Amazon ’cause it sure is nice to buy things on Amazon Prime.”

That’s so speculative. Now, those three companies may continue to be strong, but they may also fail and they’re not really suitable for day trading. That’s not a strategy for longterm success. Some beginner traders will dabble in penny stocks because they think, well, I’ve got a small account. I can’t afford Apple, Netflix, or Amazon, so I’ll buy the stock at five cents and hope it goes up to 10 cents and I double my money. Nine out of 10 times, those types of stocks end up going down to a penny and you lose all of your money. So what I really want to encourage is that you look for a proven strategy.

Now I know better than probably almost anyone. How difficult it is to try to find a strategy. I spent years struggling to try to find a strategy that was consistently profitable. I felt like I shouldn’t have to reinvent the wheel. I shouldn’t have to start from nothing and put together a strategy. There’s got to be one out there that I can just adopt. And the problem was that although there were certainly profitable traders out there when I was learning, most of them weren’t willing to share their strategy. So whatever they had that was working was a secret. And those that were out there selling a strategy, making these websites and things like that, they usually were wearing gold watches standing in front of a Lamborghini or Ferrari or something like that. And it just didn’t feel authentic. It didn’t feel… It just felt kind of dirty.

It didn’t feel right. It didn’t feel like what I was looking for. And honestly, it felt hard to believe whether or not their strategy actually worked. And so, one of the things I really encourage is that if you’re going to look for a strategy to adopt, basically someone says, “I’ve got a strategy that’s proven profitable.” Proven profitable, it’s easy to say that, but I want to see the proof. So for instance, I have statements that I upload to our website, my website, warriortrading.com and I have my $583 to $1 million challenge, certified by an independent audit. So it’s verified. That’s a real strategy. It’s profitable, real money, it’s proven. So you can have faith if you decide to learn my strategy that it’s the real deal and that there’s other people that are profitably trading it, right now. When you learn from some of the other guys out there, you just kind of learn from random YouTube videos or Twitter posts or things like that.

There’s not a lot of true transparency into whether or not those people are actually profitable. And so you have to be really, really careful of that. So as a beginner trader, it’s very hard to learn a strategy because first you have to discover that you need one. So congratulations. Hopefully now you know that. And then you either have to basically reinvent the wheel, which is develop a strategy in a bubble all by yourself without anyone’s help, which can take years or you find a strategy that you can adopt. But you have to truly know that the strategy that you’re preparing to adopt, to spend your time and money learning is actually profitable, right? That’s the struggle. So I have a quick little clip here from one of my students who is going to talk a little bit about that process of finding a strategy and then we’re going to get into number four.

The Warrior Trading Program and all the tools and the chat rooms has really helped me be able to focus in and get a good understanding and took me too long. But I develop a solid strategy that’s been really working for me for the last couple of months and I’m just giving me a really good understanding and a good basis to move forward in a profitable manner.

Number four, not treating trading as if you’re running a business. You have to think of this as you’re starting a new business. And so what do you do when you start a business? You write a business plan. The business plan for trading is essentially your trading plan. It outlines your risk management, what you’re going to do to prevent yourself from losing a ton of money. Now, if you’re going to pitch this business plan to any investor, they would want to see how you’re managing risk, right? So you’ve got risk management, you’ve got your strategy, you’ve got your research, which is essentially the trading simulator results that prove that this strategy is actually profitable. That would be like the demographic research that you might do if you’re thinking about opening a coffee shop. So you go through this checklist of preparing to open your own business as a trader and it is incredibly exciting being a small business owner both with Warrior Trading but also with my own trading.

It was something that when I first got started I was just… I was so thrilled that I would be my own boss. Now it’s kind of like running a self employment agency because you still have to come to work every day, but you’re doing it really on your own terms. You’re your own boss. Now when it comes to treating trading like business, there’s a couple of things that are also important. Number one, just like maintaining the books, the accounting, as a trader, you need to maintain a log of all the trades you take, not really from a tax perspective because your broker will give you a 1099 at the end of the year, but you want to do it from the perspective of really understanding what’s working and what’s not working, what’s your percentage of success, what’s your accuracy, what type of trades are the most profitable and things like that.

Now by tracking all of that, you can start to dive into those analytics and start to get into the metrics and figure out what’s been working, what’s not working. On a month that was particularly good, what was just perfect and on a month that was really bad, where was I getting into trouble? You won’t know that if you’re not really diligent about tracking your trades. Now, if you’ve ever driven around New York City, you’ll see UPS trucks and FedEx trucks. The whole windshield is slapped with tickets, tickets from the city of New York. They give them out just like candy and what do FedEx and UPS do? I’m sure they just pay the tickets. And what is it? It’s a cost of doing business. And so similarly when we’re trading, sometimes we’re going to experience losses. Small losses, right? As per our risk management program, small losses.

And that’s just part of doing business. It’s the cost of doing business and you have to detach yourself from it. It’s not personal, it doesn’t… It’s not a reflection on you. It’s okay to lose, really. I lose 30% of the time and I’m a self made millionaire because I’m a trader. When I turned my $583 account into a million dollars, gosh, I don’t even… I mean I made a million dollars in profit. Well, let’s see, I probably made more like 2 million in profit and I probably lost a million. I mean it’s just the way it goes. You make a hundred, you’ll lose 50, you walk away with $50, you walk away with profit. As long as you’re walking away green every day, that’s what counts. And the losses, they’re just the cost of doing business. So you really have to adopt that kind of just depersonalizing it and thinking of it very analytically.

Another thing from the business standpoint is making sure that you have the right tools. So you see, I’ve got my laptop back here with my monitors, I would say it was the right decision for me to spend a little extra money on this laptop with these two monitors and not try to trade just on my phone or something like that. Investing in the right tools is important, but at the same time, I don’t know if you guys saw this article, but there was an article that if you get the fully specked out Mac Apple tower, probably like a graphic design or a video editing company would use, I think it was $50,000 or something like that, which is crazy. So does it make sense to buy $50,000 computer when you’re getting started? No. Does it make sense to buy tens of thousands of dollars in all these analytical tools or all of these technical indicator packages or robo trading packages? No. Because most of them don’t work, right?

So as long as there will be people buying tools, there’ll be people out there making tools. But most of them are redundant. Most of them are unnecessary. And I keep it simple. I really do. I use minimal tools. I encourage my students to do the same thing, use as few tools as possible, just keep it simple. There’s no reason to overcomplicate things, all right? So I really want you to kind of gain that mentality of treat this like a business. And you sort of have to think about what are other traders doing? The ones who are really successful and I want to adopt their mindset. And there is a sort of portion of that, that’s fake it until you make it. Adopt the mindset of a profitable trader. Even if you’re not there yet. Do everything that they’re doing from how you trade, like running a business, to the strategy, to the tools, and everything else.

And number five, waiting too long to get started. Here’s the thing with trading. Success doesn’t happen overnight. You’re not going to make a million dollars overnight, you’re not going to make a thousand dollars overnight as a beginner trader. Becoming successful is a long process of first developing the knowledge which you’re doing right now by watching this video, but you also gain knowledge by reading books and hopefully watching the masterclass. If you click that link below and by engaging in my daily recaps and things like that. To convert that knowledge into a skill, you have to start practicing. Now whether you download the TD Ameritrade app, you guys have seen me do my TD Ameritrade small account challenge. It can be done so whether you trade with the TD Ameritrade simulator right in your phone or you install it on your laptop or you install the simulator that I provided and built for my students, getting into their, into the market and really starting to practice even with pretend money.

That’s how you start to convert that knowledge into skill. It gives you a chance to see if what you’re learning well, if it actually produces some profit and you sort of get a benchmark of where you’re at. Sometimes traders, potentially aspiring traders will say, “I want to learn, but I don’t have time right now, so I’m just going to totally not even start until, you know, I have, you know, time in a few months,” or something like that. And think about learning the guitar or something. If you want to learn it, you got to pick it up and you got to start messing around. You got to start playing every day. Even if it’s just a few minutes a day because all of that compounds and builds, right? And so that’s how you start the career. You get started, you force yourself to do it. For me, getting started trading, it was one of those things where I just made the decision that, you know what, I’m going to start getting up early every day.

I’m going to start watching the markets because I want to create a better life for myself. I want to make this happen. And I actually did it as part of a New Year’s resolution, which is pretty cool. I mean, it’s cool because it actually ended up totally changing my life. Not at first, not for the first year, not even for the second year, but it eventually totally changed my life. The learning curve for me was so stretched out because of… for really two reasons. Because number one, I trade with real money too soon and because number three from the third reason that most traders fail, I didn’t have a strategy. So I started trading with real money way before I should’ve and I had no strategy so I was losing money and because I didn’t feel comfortable learning from some of the other guys out there, it took me two years plus to develop a strategy that was producing any types of profit.

It doesn’t have to be that way. It really doesn’t. The sooner you get started watching these videos, engaging and hopefully becoming a member of the Warrior Trading community, the sooner you’re getting on that path to becoming a trader. All right, so as always, as you guys are watching this, if you have questions and comments, I hope you’ll leave them down below. We’ll respond to all of them and I’ll see you after this next episode. If you haven’t already, click the link to download the masterclass. Make sure you do that. I think you’ll really enjoy it. It’s a great extension of what we’ve been talking about here today.

Hey, did you know every morning I go live to stream my premarket watch list. Subscribe to the channel, press the alert button, and you’ll get the notifications. And if you want to learn more about trading, check out the links in the description and if you have questions, post them in the comments because I personally respond to every comment posted on my channel.

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