This study suggests more than 90% of day traders lose money.

I haven’t done any surveys but from my personal experience with day trading this is about right and I’ve learned early on there is no real edge in day-trading and even if you find one it will likely be eaten up by the fees. Very few survive.

Odds are somewhat better on higher time-frames but even in long-term investing majority will still significantly lag the benchmark and a big chunk of population will end up actually losing money despite the fact that market will rise almost double digits per year on average.

Any strategy you employ will suffer to some degree from any or all of the below:

 

1.CHASING

 
Fear greed

 

We all know the fear & greed cycle. On a long-term cycle it will be very palpable, from everything is rosy in 2007 to capitalism is doomed in 2009. From mom and pop opening day-trading accounts to mom and pop bookmarking ZeroHedge. It also happens on a smaller time-frame in a span of just a several weeks. Mid-February 2016 it was all about recession, strong deflation world wide etc.. while 6 weeks later it’s all business as usual.

Susceptible victims besides mom and pop: momentum traders, trend followers, people on CNBC

 

So you make some buy-the-top and sell-the-bottom trades and learn your lesson.

You decide you will no longer succumb to mass hysteria and will actually go against it.

 

2. DOUBLING DOWN

 

As Mark Twain said: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

The stock is cheap and very low so you buy it. Goes lower and now it looks even cheaper so you buy more. You put your research time in, learn about the company, feel more confident and add to your position. It worked great the last time so you go all in when it dips even more.

Then the stock goes into crash mode. See Valeant (VRX) or SunEdison (SUNE) as recent examples.

And poof, it’s gone.

Susceptible victims: value investors, deep research types, contrarian traders 

 

 

3.DEATH BY 1000 CUTS 

Ok, so now you know not to chase and not to double down. You’ve learned your lessons and you are going to be very risk averse with your 3rd account.

There’s something called a stop-loss order. If the stock goes your way you make a lot of money, if it doesn’t you lose only a small bit. Wow that is pure gold.

You immediately start attaching the stop loss order to any entry you make. What could go wrong? Let’s see. Stock goes down a few ticks for whatever stupid reason and you are stopped out. Ok, a small loss. Than it happens again. And again. And often you see the stock actually going your way later but you’re already out. And you learned in lesson 1 not to chase, right?

Susceptible victims: all short term traders