Is It Possible to Make Money Day Trading?

Most beginners who are new to day trading, when they look at a price chart, whether it’s a stock, commodities, or futures chart, think that it should be pretty easy to make money. Often, when beginner day traders first get started, they look back at the big moves and think, “If I had gotten in there, I could have made a lot of money.”

This thinking usually leads beginners to think that day trading is a relatively easy way to generate income. Day trading can provide significant income if you know how to go about it. However, most people who decide to try day trading lose money. A key to success is learning trading skills and spending a LOT of time perfecting those skills. When new traders enroll in my course, “Trading Mastery For Financial Freedom“, one of the lessons discusses spending enough time to practice before trading real money. That is the only way to gain enough experience to become a consistently profitable day trader.

So now you know that making money through day trading is a challenge and not as easy as it looks. Every day trader’s goal is to make money. However, only about 5 percent (or fewer) of those who attempt day trading end up making money. Can a new day trader beat those odds? Yes, absolutely, but it takes learning skills that most people don’t have and most day trading courses don’t teach. That being said, the first thing beginner day traders should understand is that day trading is not easy.

There are many many (that’s not a typo) day trading schools, so why is it that 95% of day traders lose money? There can be two reasons that come to mind. One reason traders lose money is that the lessons purport to teach an effective day trading strategy, but none exists. The other reason is that there may be something other than mechanical trading skills that’s missing in those lessons. Referring to a chart in hindsight is the main tool used by day trading schools. But it’s oversimplistic and hasn’t lead to a decrease in the 95% of day traders who lose money. What needs to be included in the curriculum for teaching day trading is a skillset in psychology. Psychology, in addition to other skills like reading candlesticks, is critical to making money day trading. A skillset that includes lessons in the psychology of trading can include information such as when NOT to trade. For example, to stay out of the market when a trader senses a lack of inner confidence in market direction or timing.

Unquestionably, it’s unlikely for new day traders to make money when they first get started. In fact, most day traders don’t see their efforts produce successful, consistent results for at least six months to a year from the time they begin trading.

Numerous issues and situations contribute to making the market difficult to determine and quantify with any consistency. Many so-called “gurus” claim to have developed successful strategies that purport to make money day trading. None have ever proven their worth. Long-time traders know that the only thing that can be said of the market is that it is consistently inconsistent.  Taking the time to learn and understand what triggers shifts in market action. Day trading lessons in psychology can better prepare day trader to predict if, when, and in what direction a market will move. But beyond this, psychological factors also weigh heavily on the decision to put on a trade.

• Learning to control financial risk in case of making a wrong decision about the direction of a trade by putting a stop loss on your trade.
• Understanding that you can’t always get the exact price you want when trading, especially with market orders. Heavy activity in thinly traded markets might create “slippage”. This means the price of execution deviates significantly from the price at the time the order was placed. Traders can choose to skip what might be a good trade or accept the less-than-ideal market price. Both options will reduce the theoretical profit on the trade. Even when using limit orders, a trader might get filled for only part of their order on winning trades when the market runs away before filling the whole order. On the other hand, he ends up with full positions on the losers (the price is moving against him, so, unfortunately, he always get the full order). However, slippage is less of a problem when trading highly liquid markets, such as S&P eminis. In the emini futures market, because it’s the world’s most actively traded market, slippage is rarely a problem.
• Psychological Factors: The market is composed entirely of individuals (and computers) trying to make money day trading, or avoid losses. At any time during a market session, 50% of traders think the market will go up, and 50% feel it will go down. The resulting market action is heavily influenced by the collective psychology of individual traders. Experienced traders look to take advantage of the orders that are placed by inexperienced traders. Veteran traders look for prices they believe allow them to leverage some potential in the asset that others have overlooked and that will provide a good entry or exit point for them.

No discussion of learning day trading is complete without discussing how greed and fear motivate trading decisions. The individual desires and intentions of day traders can substantially influence the outcomes of their trades. A bit of success can lead to greedy actions that stray from an established trading plan. These can include taking action too soon, holding on to a profitable gain for too long, or not cutting losses soon enough in a losing trade.

Fear can likewise cause day traders to hold back too much when an opportunity is in the making. They might also sell in a panic in response to breaking news without taking into account all of the other factors at play. Forming a solid trading strategy has the benefit of keeping a trader focused on results without being swayed by emotions. But the flip side of that coin is that there’s no such thing as a “solid trading strategy”. Many a trader has lost a huge amount of money because of his/her reliance on a trading strategy that wasn’t so solid after all!