Why Do Most Stock Traders Fail?

If you haven’t already heard the statistic often passed around the stock trading community, then listen up. It’s been said that 90% percent of stock traders fail. Now I haven’t been able to find any real research that prove’s that particular theory true but there are a lot of other statistics out there that might show its validity. Barber Odean, who wrote “Do Day Traders Rationally Learn About Their Ability?”, said that 80% of traders quit within the first two years. I’ve made it past that! Phew.

Without getting in to an in-depth research paper style post most traders who’ve been in the game for a while can prove the validity of the “90% failure rate”.

I can think of dozens of different reasons why traders are so likely to quit. It’s by far the hardest thing I have ever done in my life. Trust me, I get why this profession weeds people out like wildfires. The daily psychological upsets, regret, “what-ifs”, anger, excitement, adrenaline pumping ridiculousness is just some ways that I can describe it. Taking control of so many different emotions and learning how to be disciplined, all while trading your own hard earned money, all by yourself is NOT easy. Overcoming the odds can be a really great feeling but not many experience that.

So why do most traders end up failing?

As if my little description above wasn’t reason enough to quit, I believe it comes down to one major problem. Ultimate failure comes when you run out of money. You can’t trade anymore when you blow up your account. In order to stop that from happening requires a lot of work, time and dedication to finding a system that is successful. Failure and failing are two different things in my opinion. Failure is the end, but failing is just another opportunity to try again. I tried a few and have failed more than I care to admit, but I was able to keep myself above water long enough till I started to find what worked for me.

Everyone is different. We all have different ways of connecting the dots, some of us are more disciplined or have higher risk thresholds (just have so much money that it doesn’t matter when you lose). This all adds up to dealing with the stock market in a different way. Where one trader see’s opportunity, the other runs away with his tail between his legs. Either way as long as you end up profitable is all that matters, right?

“In investing, what is comfortable is rarely profitable” – Robert Arnott

Are you failing? Are you hitting one loser after another? Odds are you are going to make it worse, continue to break the rules and lose more until you are either out of money or quit. If your life depends on trading for a living, then you’re going to be in even more trouble. This is where many get in to trouble or over their head and start to rack up higher losses and taking lower profit. I see it every day in the trading community’s I belong too. So many times I see others saying they are buried in a stock because they didn’t stop out, or they’ve been bag holding a stock for so long, just “hoping” the stock goes back up and they can just break even. More times than not, the market will be insolvent longer than we can remain solvent. One trader I use to trade with got so buried that he started using credit cards to trade with. Sadly he didn’t last much longer after that.

Here’s some reminders I like to give myself. 

  • You can’t win every time. 

  • Taking losses is part of being a successful trader.

  • You won’t become rich overnight, it will take many years of hard work.

  • Stay patient, let the trade come to you. 

  • Don’t quit your day job until you have a proven track record. 

  • Don’t chase. There is always another setup around the corner. 

I had some beginners luck but then struggled myself when I first started trading. I finally turned things around when I invested in a mentor program. It seems every successful trader has or had, at one time, a mentor to get them profitable. That investment in myself was the best thing I ever did. Most of the time a mentorship is expensive, but it really helped me focus and get out of a major losing streak.

Remember it’s not over if you don’t run out of money! You might get beat up but at least you can still try other styles of trading that might fit you better. Check out my stock alert services page for more info on people that have helped me succeed. Also a quick refresh of some basic risk management can never hurt. Also don’t let navigating the PDT rule stop you from trading, their is always other options like SureTrader.