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94% of Day Traders Are Failing While Burning Holes in Their Wallets — and This is Why

94% of Day Traders Are Failing While Burning Holes in Their Wallets — and This is Why

94% of Day Traders Are Failing While Burning Holes in Their Wallets — and This is Why 1024 683 Steven Dux
It’s reported that 94% of first time traders fail within the first year…

Whatever the actual number is, one thing is clear: most first time traders fail!

Why is that?

With so much advice available and so many techniques, strategies and processes to follow, why do so many people fail so miserably? There’s a simple reason why.

First, I want to make sure you know about the risks…

When I first began to study the markets, I thought I knew about these risks. I knew the odds were stacked against me and that there was a chance I could lose all my money. I knew it wouldn’t be easy and that not everyone makes millions by penny stock short selling and day trading.

But I also imagined I would be one of the ones who did succeed.

I knew I would work hard.

I knew how good I was with numbers and graphs (from my engineering days.)

I knew I had a strong work ethic (which I got from my mother.)

I also saw other people succeeding so I knew there was a way to break through the mold.

They didn’t seem to have anything I didn’t. It’s not like that they had an economics degree or just finished an apprenticeship with Goldman Sachs. They didn’t have existing wealth. They started with nothing.

I didn’t think I would become part of the 94% of traders who failed. But the truth is, I nearly did.

How I Nearly Became Part of the 94% of Traders Who Fail…

Most of the time, I just sat there.

  • Thinking about what I would do after graduation…
  • Worrying about whether I would find a job…
  • Scared that I’d have to go back to China (which was the most likely outcome)…
  • Imagining what my father would say, returning as a failure…

Time was against me. I didn’t know what to do. I talk about this period in greater depth here. In this article, I talk about why you should trade Penny Stocks and Small Caps and NOT listen to advice from the likes of Warren Buffett, Ray Dalio and George Soros.

What I will say here is… this period in time was my Rock Bottom.

I hated my life and I saw no way out of it (I would dread waking up because I was fighting to find a way to break out of the situation I was in).

I didn’t know what to do. So I began studying the markets because it was one of the only things a guy on an F1 Visa could do. It seemed simple enough. With my ‘engineer’s brain,’ I felt comfortable around the numbers and graphs as opposed to other industries like real estate, which had contracts that I couldn’t understand due to my limited knowledge of the English language.

If I could turn my savings into $10,000, $25,000, maybe even $50,000, it would buy me some time.

Yet in the beginning, all I seemed to do was lose money.

  • I felt so overwhelmed: not just with all the advice, content and “experts” online, but trying to balance studying the markets with school and my dead-end job.
  • I felt terrified: that I would lose all my money. I had already wasted so much of it, let alone countless hours on books, courses and seminars.
  • I didn’t know who to trust: there are so many “so-called” experts; who is the right person to follow and listen to?
  • I lay awake at night, unable to sleep: worrying about all of this (when I wasn’t at my graveyard shift, of course).
  • I felt like a failure: everything seemed to go against me (my girlfriend broke up with me, I had no money, no job prospects and would soon get deported).

When I first came to America, I didn’t think it would be like this.

But, this was my reality. And it nearly became the end of me. Had this continued, I too, would have become a part of the 94% who fail. The only reason I didn’t is because of what I did next.

The Difference Between Failure and Success

They do not learn!

Worse, they do not want to learn.

A person usually gets into day trading because:

  • Someone they know told them about some “big tip”
  • or they came across a video from one of the industry “experts”
  • or they read about a company set to hit the big time and presume it’s the next Apple

They think they’ll get lucky; they assume they’ll be a part of the 6% who make it with day trading, just like I did.

The reality is, you’re more likely to lose all your money than become a millionaire with trading.

Very few people get lucky.

Very few people survive off of a ‘big tip’.

Very few people hit the top without A LOT of work.

The bottom line is that You need to know what you’re doing.

In the beginning, I didn’t and this is why I kept losing. It’s not just about learning how to trade… you need to WANT to learn. It wasn’t until I committed, relentlessly practiced and went “all in” that I began to make some real money. As I listened to the “expert” advice, took their courses, followed their strategies step-by-step… I failed.

I presumed that because they were an “expert” they knew what they were doing. I did as I was told and expected everything to just work out for me.

This is why I nearly became a part of that 94% who fail.

It’s why most people do…

The good news is that you can turn things around (quickly).

I’ll show you what not to do, and what to do instead. Not by blindly following my advice, but learning basic principles so you can test, improve and re-create your own strategies. I learned this the hard way, but after reading this, my hope is that you won’t.

What I Did To Bounce Back From Rock Bottom

It’s simple… I stopped blindly following every expert and the advice they offered! Until this point, I studied a lot but I didn’t really enjoy it. I did it because I needed the money and I saw it as the only way I could make some.

I was learning, but not really.

So, there I was at rock bottom, very few options and an inevitable return to China on the horizon. I had no choice but to step back and think about what I NEEDED to do.

I realized I had slipped into the trap of blindly following advice and assuming the other person was right. This wasn’t me. From a young age, I’ve always questioned what other people taught me. It used to anger my teachers back home in China. But this curiosity to understand how something worked is what led me to engineering in the first place. I needed to get back to this and fall in love with trading.

I didn’t need to just learn how it worked…

… But learn WHY it worked!

I revisited those courses, videos and seminars and pulled apart everything the “experts” taught, then I tested them with paper trades to see what would and wouldn’t work. After diving deep into these strategies and identifying patterns, I began to make my own strategies based off of these patterns that kept recurring, sometimes up to 60 times in a calendar year and would generate 25% returns about 85% of the time.

This wasn’t 25% over an entire year, either… this was 25% over a few days (sometimes less).

I fell in love with studying the markets. Not just the learning aspect of it, but learning to understand the psychological elements behind these patterns. I took the information I needed and got rid of the rest. I soon had my own strategies, my own techniques and A LOT of patterns to test with trial accounts.

These test runs worked; they kept yielding 25% to 35% returns. I had the confidence I needed to invest some real money and quickly doubled the $27,000 that I should have used for my college tuition (and a loan from a friend of mine).

Within a year, I had made $1.3 million. If you’ve seen my account on Profit.Ly, you’ve seen exactly how much money I’ve made day trading, with all of my verified trades. The patterns I found and the techniques I created kept working.

The prospect of getting deported back to China no longer became a worry. As was being part of the 94% who fail. How did I do this? Because I achieved it on the back of some core principles, mindsets and strategies. This isn’t about me telling you what to do. But these core principles will guide you in the right direction; to help you see what you need to and avoid the biggest mistakes most people make.

BUT FIRST… It’s Time To Debunk Some Day Trading Myths

1: You Should Invest in a Brand Name

This is not important. You shouldn’t trade by a company with a big name. You should be day trading based on the patterns you spot in the market. This is true for all trading, but especially with penny stock trading and small caps.

2: You Have To Stare at a Screen All Day

This is partly true if you trade large cap stocks to make trades that earn you a small return with a large amount of money (think millions being invested), but even then you should have a team doing most of your research. I only spend two hours each morning on my computer. This is true for most day traders once they start using the right strategies. Spending eight hours at your computer does not help you, especially if you’re trading after 1pm EST. In fact, it can actually hurt you as the day trading market cools down.

3: You Need To Be An Expert and Create Your Own Techniques and Strategies

Some people want to make hundreds of strategies, but the fewer strategies you use the better. Will you tweak a technique? Sure. But you don’t need to build your own strategies so long as you follow those that yield proven results. This is especially true with penny stock trading and small caps because the patterns keep appearing time and time again. Once you find one that works, use it over and over.

Borrow patterns from successful traders that work before exploring and creating your own.

These day trading myths hold people back. They held me back in the beginning. Even when I began making good, consistent returns, I worried if I was working hard enough. I would often spend time at my computer because I thought I had to. I didn’t. Once I stopped worrying about these myths and focused on these core principles instead, I began to enjoy life and take advantage of all the free time that comes with a day trading career.

1: Analytics vs Psychology: What Most People Do vs. What They SHOULD Do.

I realized that focusing on data is important when making a trade and diving into the psychology of people is valuable when discovering a pattern. When making a trade, I pretty much only look at the market cap and graphs. It’s all the technicals I focus on. I don’t think much about the fundamentals.

I look at how much supply and demand there is and use this to predict actions. So if the volume trades at two million shares in the free market, I use this as a condition to predict how many shares will trade overall during the day.

Once you test out statistics like this, you can use the number to predict how much volume there will be, and once you predict the volume you can predict how many times the float will rotate.

While trading, I focus on the data. Psychology doesn’t come into it. But in the beginning, I wouldn’t always trust the data. I’d make decisions based on my emotions, which, as we’ll cover next, is a terrible idea. This isn’t to say psychology isn’t important, because it is. But psychology only comes into it when creating patterns.

A pattern first forms based on what other people do. It’s all human psychology. So once you learn what the fundamentals of the pattern are (what’s actually happening), it’s easy to see why that pattern is happening.

So, although psychology doesn’t come into my actual trades, it is something I use offline to discover and understand patterns. This then helps me make more informed decisions while trading and build strategies and techniques on the back of it.

Yet this isn’t what I did when I first started. It’s one of the reasons I kept failing. I wouldn’t trust the data when I should have and I let my emotions get in the way. Which is exactly what you should NOT do!

2: Remove Your Emotions From Your Investments.

I used to base my decisions on 90% emotions and only 10% logic. I would think about what my ‘gut’ told me and ignore the data if I had a “feeling” that a particular stock would go up. Looking back, I realize how much time I wasted and the money I lost.

These days I’m the complete opposite: 90% logic and only 10% emotion.

I mean, we’re all human so you can never completely remove your emotions from your trades. But it’s important to remove them as often as you can because they’ll only hold you back.

It’s tough to do. I struggled with it for a while. When a stock would go up, I would begin to feel like I was missing out and had missed a great opportunity. So I’d make a trade, even though the data showed me it wasn’t a good idea and that the time had passed.

The same would happen if a stock began to fall. I’d panic and sell, even though the data said not to. We call this Emotional Trading and it affects almost every single trader (new or experienced). There’s no way to completely escape it because we’re not robots.

But you can minimize the impact by:

  1. Having a plan (Know what you can lose and understand the patterns before you go into your trades)
  2. Checking statistics (How many times did the pattern happen last year? What’s the risk? What’s the reward?)

As soon as I did this, I found it easier to move from emotional to logical decision making. I trusted the data more and my own gut-feeling less. A lot of this comes down to the strategies you implement and the techniques you follow. They need to be good, which brings us to the next point…

3: ONLY Listen to Good Advice.

That will not help you. They won’t give you the strategies you need to succeed with penny stock trading or small caps, which leads you to make emotional decisions because you don’t trust the data.

The advice you follow is important. They not only need to be reputable with a good track record, but they have to be relevant to the trades you’re making. So before you follow someone, make sure they started in the same place as you and with a similar amount of capital.

I didn’t do this and it held me back. I made emotional decisions because I didn’t trust the advice I was getting. But I chose the wrong advice and chose the wrong people to follow. What did I expect to happen?

Now, this leads to another problem because you end up coming across the many penny stock experts and gurus that seem to come at you from everywhere. It’s hard to know who to trust and even harder to know what you should listen to. I remember how overwhelmed I felt and how skeptical I became of everyone.

But distinguishing the good advice from the bad is actually pretty easy because all I needed to look for was proof.

  • Do they verify their trades on a platform like Profit.Ly?
  • Do they show the trades they make or just talk about it?
  • Can they prove their track record?

If they do, you can trust their advice. The strategies they share may work for you.

If they can’t… what they say is likely a lie and you will only lose money following their advice.

It’s pretty simple. As soon as I filtered everything through these questions, I found it a lot easier to cut through the noise. I found the strategies and techniques I needed and built my own on the back of these as I tested the patterns.

Although I will say one final thing on this… I wish I had got a mentor sooner!

Not just courses, books or video series, but an actual mentor I worked with 1–1. I think this is true across all industries. You will get to the top quicker with a mentor by your side. Someone who is further ahead than you, but also who started where you are.

If you want to become a full-time day trader, you need a mentor. Without one, it can take you five years or more of practice, mistakes and inconsistency before you’re ready.

With a mentor, it will take you two years or less!

4: You Don’t Need More Strategy — You Need LESS.

If I created and used more strategies, I will make even more money… Right?

Yeah… doing more doesn’t always result in more.

It’s a problem I see with a lot of new traders. It’s why a lot of people struggle to keep their momentum going. It’s why I struggled in the beginning because all I did was work harder and longer. I figured if I spent longer at my screen I’d make more money. But the opposite was true because I tried to focus on too many things. So I stripped everything away and focused on the strategies that I knew worked and guess what happened? Yeah, I started to make more money.

It’s strange how less creates more but it really is true. It isn’t about how many strategies and techniques you use, but rather finding a small amount that works. Even today I only ever work from 8 Techniques.

These are the techniques I teach my students and who I mentor people with. They work. They worked for me when I first started’ and they continue to work for me now. I don’t need more strategies and neither do you. In fact, less is more.

How To Succeed Where 94% of Day Traders Fail

I nearly failed. I nearly ran out of money. I nearly ran out of time and if things had played out differently, I could be leading a very different life in China now.

But I turned things around (quickly) by committing to these core principles.

Penny stock trading isn’t like a lot of trading. If you find the right strategies and listen to the best advice available, you’ll find patterns that appear again-and-again. You can begin with a relatively small investment and yield great returns quickly.

I mean that. It’s not uncommon for my students to double, triple or even quadruple their initial investment in a matter of weeks. Many of them lost a lot of money before reaching this point, though. Like I did in the beginning, they felt overwhelmed and unsure who to trust.

The same applies today and it’s why so many first-time day traders fail.

It takes more than just “learning.’ There are too many gurus, so if all you do is copy, replicate and follow every tip you come across you’ll lose out. It wasn’t until I began to question what I learned (and applied only what I needed to) that I began to make some serious money.

  • Remove your emotions from your trades (whether it’s penny stock short selling, buying or whatever else)
  • Trust the data, especially when making trades (psychology is important, but only when creating patterns and strategies).
  • Find a few trusted people to follow and get rid of everything else (better yet, hire a mentor who can help you get to the finish line in half the time)
  • Once you find a few strategies that work, dive deeper (less is more!)

Follow these core principles and you’ll find penny stock trading isn’t that hard.

None of these principles give you all the answers you’ll ever need, but they’ll keep you on the right path. These are the principles I’ve followed in my own day trading career and it’s how I continue to help my students avoid falling into that dreaded 94%.

Don’t fall into the trap like so many new day traders do.

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