Many people are interested in stock market trading but do not have the requisite skills and information.
Such people may find themselves among the 80-85% of day traders who end up losing money in the stock market.
You see, normally, 70% of the intraday traders do not last beyond the first year and 90% do not last beyond the third year.
Intraday trading, popularly referred to as Day Trading, involves the purchase and sale of stocks within the same trading day.
For example, if the stock opens trade at ₦‎1000 in the morning. Soon it climbs to ₦‎1050 within an hour or two.
If you had bought 1000 shares in the morning and sold at ₦‎1050 then you earn a profit of ₦‎50,000.
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Still, intraday traders are frequently losing money in the stock market. What is the reason for this and why do intraday traders lose money so consistently?
At least seven primary reasons for intraday trading losses shall be discussed in this article.
7 Reasons Intraday Traders Lose Money
Lack Of Trading Discipline
Trading discipline has to focus on three things. First, there must be a trading book to guide your daily trading.
Secondly, you must always trade with a stop loss only. Thirdly, you need to keep booking profits at regular intervals.
When any of these aspects of disciplined trading are compromised, it leads to losses in intraday trading.
Trading discipline is critical because as an intraday trader, your primary focus must be to protect your capital and limit your losses.
Too Much Panic In The Market
One of the basic reasons traders lose money in intraday trading is due to panic. In the stock market when you panic, you subsidise the other trader who does not panic.
On October 19, 1987, the stock market witnessed a major case of panic buying that crashed the market.
It was a massive panic in New York spreading throughout Sydney Stock Exchange in Australia.
Trading Against The Market
For a long-term investor, taking a view against the market may be productive in the long run.
But if you are a trader, then you must ensure that you always stay on the side of the market. The right side for traders is the side of momentum.
Always trade on the side of momentum and never try to outsmart the market. That is a recipe for losses in intraday trading.
No Capital Limits On Trading
This is an essential part of your trading discipline, especially when you are trading intraday. You need to put limits on your maximum loss at various levels.
A stop loss must accompany each trade. You must set limits for losses for every trading day.
If the losses happen in the first hour, have the discipline to shut your trading terminal for the rest of the day.
Have an overall capital loss limit where you will get back to the drawing board and revisit your entire trading strategy. This is your insurance against trading losses.
Trying For Rapid Loss Recovery
This is a common problem among a lot of intraday traders. When they incur a loss, they either try to average their position or try to overtrade aggressively to recover that loss.
This will only lead to more losses. When you incur a loss, it means the trade was wrong. When you average or overtrade, you are just being wrong twice.
Losses are part of your trading process and that is why limits are set and adhered to judiciously.
Relying On Trading Tips
A big challenge for intraday traders is how to trade and what stocks to trade. While brokers do provide trading ideas to clients, quite often traders also rely on external sources for tips on trading.
That is best avoided. The best way to trade intraday is to master how to read charts gradually interpret news flows and trade on your own.
It is a slow process but there is no alternative to learning methodically and trading on your own.
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Poor Feedback Loop
One of the key steps in intraday trading is to ensure that the feedback loop and the learning process are complete.
Ideally, the intraday trader must maintain a trading diary that documents the trades, the justification for the trades and the review of trades each evening.
This will work as a basic manual for the intraday trader’s continuous learning process.
Most intraday traders lose money because they do not get the small things right. Take care of the micros and the macros will take care of their own.
