Can You Succeed as a DayTrader? (How to avoid the 90%failure rate)

Can I succeed as a day trader? Can I really make a livingdoing this?

Let’s be honest. All day traders have asked this question atsome point in his/her career.

Perhaps it’s a daily doubt for some. Lying on the couch or thefloor after a debilitating loss from an undisciplined trade.Trying to short the front side too early. Getting caught inhalts, kill candles, offerings. Dejected. We’ve all beenthere.

The question gets louder the more losing days we suffer in themarket, doesn’t it?

We doubt when we lose. We believe when we win. The processends up being a rollercoaster ride of emotions and PnL swings.All that’s left in the wake of the mess is doubt. We wonder ifit is worth it.

How does anyone succeed as a day trader? We think toourselves.

Is this how it is has to be? Is it a “rite of passage” totraverse this rocky, murky land of market swamps and quicksandonly to climb the peaks of profit? Does the journey of asuccessful trader have to parody the epic of Frodo in The Lordof the Rings?

The Fellowship of the Ring “The Bridge of Khazad-Dum” (2001)

Certainly, it appears that way, doesn’t it? The constantpursuit of riches in the market drives us forward like the“precious…” ring of power. We feel like we’re going throughthe tombs of Moria and hoping we get to the other side beforethe Balrog knows we’ve been there — dodging goblins likelosses and shelf offerings and short squeezes and marketmakers.

It does get a bit hairy at times.

Drama aside, let’s take a deep dive into what it really takesto be a successful day trader. We’ll divulge a few secretsalong the way on how to avoid that dreaded 90% failure rate.

Why Most Traders FailTo understand how to avoid failure, we must first become awareof what causes it. Ironically, it isn’t failure itself thatsets the trap for most day traders. It’s actually success.Early success.

Chartered Market Technician Cory Mitchell describes theproblem with early success as random reinforcement. What israndom reinforcement?

Random reinforcement is the attribution of arbitrary eventsto qualify (or disqualify) some hypothesis or idea; givingthe illusion of skill or lack of skill to an outcome that isunsystematic in nature.

https://www.investopedia.com/articles/trading/09/random-reinforcement-why-most-traders-fail.asp

Let’s put it in layman’s terms.

What this means for the day trader, especially the beginningday trader, is that your success is random. It wasn’t causedby anything you did, per se. It is similar to the Dunning-Kruger effect:

Why is this important to understand?

Early success as a day trader leads to overconfidence. You mayhave heard of beginners luck? Well, it’s real. And it’s alsoreally destructive.

When we attribute our successes in the market to our own skillor talents without a system, we are setting ourselves up forhuge disappointments when that randomness shifts on us.

Instead of taking ownership, we inevitably blame the marketfor our losses when they come. We like to point the finger atanyone but the guy in the mirror. But if it’s the market’sfault when you lose, is it your skill when you win?

What Random Reinforcement CreatesBad habits. That’s it in nutshell.

When our actions and emotions are reinforced by randomoutcomes to make us believe we have some inherent talent, itpromotes the continuance of those actions, producing bad

habits.

We become reliant on the outcomes of randomness in ourtrading. And the irony of it all, is that it sets us up forfailure.

But why does that matter if we are winning, you might ask?

Because there is nothing systematic about this approach totrading. There is no evidence of a probable outcome with aclear rate of success. You still have no idea what the chanceof a successful outcome will be.

And herein lies the secret to overcoming this: having asystematic approach to trading.

Being Systematic to Succeed as aDay TraderEnter Distinguished Professor of Risk Engineering at NYUNassim Taleb. Taleb is a mathematician, author, andphilosopher who spends most of his time thinking aboutrandomness and probabilities. In his New York TimesBestseller, Fooled by Randomness, Taleb makes the followingobservation:

When I see an investor monitoring his portfolio with liveprices on his cellular telephone or his handheld, I smile andsmile.

Nassim Nicholas Taleb

At first glance, nothing appears wrong with this. What is sobad about checking stock prices, right? You want to know howyour positions are doing, don’t you?

Sure, we’re all curious. Perhaps we don’t trust the market.But what is really impactful about this statement is how it

reveals the nakedness of our emotions and their dependence onrandom activity in the market.

Think about it this way: if we have a systematic, highprobability, tested approach to trading, why would we need toconstantly monitor our positions? After all, we know where ourrisk is set. We should know where our targets are set. And weknow the probability of success with our particular strategy.

While we’re certainly not advocating for any unnecessary orirresponsible detachment from the market or your positions,we’re strictly pointing out the distinction between randomhope and systematic planning and execution.

After all, why would you need to worry about the intangibles?The randomness? Especially if your system works.

Are You a Gambler?Be honest. Without a systematic approach to trading (even ifyou are a discretionary trader), you’re a gambler. There is noway around that distinction.

Without an education, without some sort of data drivenprocess, you are gambling in the market every time you put ona trade. Not knowing the probability of outcomes for a tradeis like throwing dice, or playing a roulette wheel.

Heck, even professional gamblers know their probabilities, andthey tend to succeed as traders, too. That’s why they arecalled professionals. You can make a living counting cards, ifyou know what you’re doing.

But knowing what you’re doing is the key.

How to Succeed as a Day TraderIt may sound simple and cliché, but success in trading boils

down to four ongoing traits in the character of a trader.

Here they are:

Enhanced self-efficacy beliefs1.Building good habits2.Relying on a proven system3.Practicing self-control4.

What? You were expecting something like, “follow a trade alertservice?

Or how about, “take stock tips from friends.”

No. Despite popular belief, “stonks” don’t always go up. Andfollowing someone blindly into a trade is a recipe for pain.

Pop culture aside, lets do a quick dive into each one of the

above qualities with some practical ideas for growth as a daytrader.

1. Enhancing Self-Efficacy BeliefsSuccessful traders, like professional athletes, must practicedaily. Not just the technicals or the fundamentals of theirsport, but their mindset as well.

Think about it this way: if Tiger Woods didn’t believe hecould win the Master’s, how great would his chances be ofdoing so? Fortunately for him, he was raised by a father whonot only instilled confidence in him, but invested in histraining from a very young age.

Like Earl Woods, Pradeep Bonde (aka StockBee), is a wealth ofknowledge in the world of trading. As a mentor, he reminds hisbudding traders of the path toward self-efficacy and how itrelates to learning and motivation.

Bonde builds on the psychology behind self-efficacy, givingfour tips to grow your self-efficacy. In order of importance,they are:

Mastery experienceRole modellingVerbal persuasionPsychological cues

Without going into great detail, let’s suffice to focus on oneof these: Mastery Experience.

Tiger Woods didn’t become the greatest golfer in the worldover night. And for you to assume that you will become anovernight success in the markets is reckless at best.

Mastery experience comes from a deep, very deep understandingof the content knowledge AND the ability to perform the tasksinvolved to a high degree of accuracy.

You’ve probably heard of Malcolm Gladwell’s 10,000 hours ofpractice rule of thumb? Well, that heuristic has recently beendiscredited, but the principal remains.

If you don’t have a task-based system, or an approach totrading that you can define and trust through masteryexperience, then you will lack this most important ingredientto your success.

2. Building Good HabitsNow you know you’ll have to become a “Master” of the marketsto find success. But what does that really mean on thegranular level?

It means your habits are in line with your systematic beliefs.

Let’s return to the sports analogy. If you wake up late ongameday, eat a bucket of fried chicken the night before, andhave a few stiff drinks to go to bed, do you think you’regoing to perform well?

Likewise, showing up late to practice, not paying attention to

your health, and dismissing the menial fundamental tasks ofwhatever position you are playing is going to limit yourability to win.

Consider the 2020 Heisman Trophy winner, DeVonta Smith, as anexample. In a fantastic interview with GQ, we learn thepainfully consistent approach to training that “Smitty” takes.He isn’t big, but he has good habits, small things that builthim into the record-breaking wide receiver that he is.

He’d do 100 push-ups a day in high school, set to a timerevery hour on his phone, which meant sometimes even droppingdown in the middle of class.

Tyler R. Tynes GQ Magazine

Now that’s a serious habit, isn’t it? Not to mention thethousands of catches he practices every week, or the drills,the film he watches, etc.

Imagine the results you’d get, over time, with a repeatableprocess of building good habits in the market. You may not winthe Heisman, but you just might land somewhere near thesuccess and consistency you desire.

3. Relying on a Proven SystemFirst of all, where can you find a proven system? Or betteryet, how do you find a proven system.

There are so many ways to skin a cat in the markets, that wewon’t go there. Educational resources abound and are availableto traders at the click of a button.

From the foundational teachings of Richard Wyckoff, to complexoptions strategies, to quant-based systems, there is no end tohow you can make money in the markets.

What is most important, though, is that you find one. A

trading system. And that you test it.

It is through this testing that you come closer and closer tobetter opportunities. As trading psychologist BrettSteenbarger recounts in an article for Forbes,

“The point is: I come out of the past week feeling quitelucky. There is no way in hell I would have noticed therelationships I observed had I not been so frustrated that Ispent long hours with the data.”

Brett SteenBarger, Ph.D.

Therein lies the key to finding a system. Data, data, and moredata.

Perhaps you want to be a discretionary day trader of equities.You spend time exploring different methods, studying differenteducators’ approaches, and you settle on a handful of setupsthat you want to test.

That can be the fun part. But what do you do when you have afew strategies that fit your personality style?

Backtesting Strategies and DataFor data driven traders, there are sites like Spikeetavailable to backtest your strategies. Or, you can test themyourself over time by logging and journaling your resultsthrough Excel or an online service like Chartlog or TraderVue.Here at Tradingsim, we also offer an analytics tool to betterunderstand your simulated trade results.

Here is an example of testing a strategy:

Testing strategy win rate through analytics

These were live trades of a strategy that had at least 20samples of the setup to become a stable version. Each versionhad it’s own criteria.

But this takes time, right? So, how can we speed up thatprocess? The fastest way is market simulation. More so, asimulator that tracks and analyzes your results.

The biggest hurdle that most traders face with achievingmastery is time. The market only opens once per day. And sometraders may not be able to trade everyday. Maybe you haveanother job?

Yet, imagine if you could test your strategy in real-timewithout the confines of normal market hours — effectivelysending your training into overdrive. Train when you are offwork, on weekends, whenever!

No matter how you tackle this important piece of your tradingjourney, it needs to be done. And, it takes effort. But thateffort will build the foundation of mastery experience youneed before you start throwing money at the market.

After all, there are no free lunches in the market. You

wouldn’t expect a surgeon to operate on you without years oftraining — even if he did sleep at a Holiday Inn Express lastnight.

4. Practicing Self-ControlDespite achieving mastery, self-belief, good habits, and asound trading system, at the end of the day we are all human.There comes a time in the life of every trader when he/she isfaced with impulses.

Perhaps it is to add to a losing position and average down.Maybe you’re trying to time the top of a stock that is goingstraight up. Or, you failed to enter the stock on a pullbackand now it is going higher without you.

Do you chase it?

Whatever the case may be, there are times when the weakness ofour mind gets the best of us.

Knowing this, it behooves us to practice mitigating thesemoments.

It is what will save you from debilitating losses, and fillyour pockets with consistent profits over time.

According to Steenbarger, who mentors countless professionaltraders at proprietary trading firms and hedge funds aroundthe world, the most frequent word he encounters in traders’journals is “patience”.

Steenbarger interprets it this way: “that a good, disciplinedtrader is often not trading.”

All too often, the undisciplined trader’s mind becomesrestless through boredom. Trading has become a drug. You beginto trade setups that no longer fit your criteria, thinkingfalsely that you need to be doing something.

Vice versa, you fear you may lose the unrealized gains youhave instead of being patient for the trade to unfold. The bigpicture is lost by the emotions of loss aversion.

Self-control is the key to measured success and longevity inthe markets.

Do You Have What It Takes?This is the question we all must face. Can you succeed as aday trader? Most will fail, but some will succeed. And thereis nothing wrong with choosing a different meaningful path inlife.

The realist will imagine the amount of time, effort, andpractice it will take to succeed as a trader. The romanticistwill fantasize about getting rich quickly, only to lose the“hard-earned,” lucky profits he’s made.

We hope the latter isn’t you. And that is why we are here.

Training and education are the keys to knocking down thebarriers to success. Here at TradingSim, we provide a wealthof education and a free-trial to practice your strategies.

With that in mind, we hope you’ll utilize these free resourcesand our simulator to practice your strategies, hone yourskills, and develop your mindset.

We’d love to hear how your story unfolds. Send us a note atsupport@tradingsim.com.