Why Most People Lose Money Trading, and How to Limit Losses

You've probably seen the line "90% of day traders lose money." It gets repeated everywhere, usually with no source behind it. Here's what the research measured, why people lose, and the rules I teach to keep losses small.

What the research measured

Here's an ugly number. A study called "Day Trading for a Living?", by Fernando Chague, Rodrigo De-Losso and Bruno Giovannetti, followed everyone who started day trading Brazil's equity futures market from 2013 to 2015.

Of the people who kept at it for more than 300 days, 97% lost money. Only 1.1% earned more than Brazil's minimum wage.

That's one market and one group of traders, so it doesn't describe everyone everywhere. It does line up with the regulators. The SEC's guide for investors says day traders "typically suffer severe financial losses in their first months of trading." The CFTC, which oversees futures markets, warns that many people lose all of their money and can owe more than they put in.

Why most people lose

And the reasons are boring:

• No written rules, so every trade is a new decision made under pressure.
• Trading too often. More trades mean more fees and more chances to break a rule.
• Moving the stop. A small planned loss turns into a big unplanned one.
• Trying to win a loss back. The next trade gets bigger and faster at the moment judgment is worst.
• Fees. Commissions come out of every trade, winners and losers alike. The SEC's guide points out that day traders pay their firms "large amounts in commissions."

The rules I use against each one

Each rule here is a lesson title in my course.

If it's bad, it compounds. If it's good, it compounds.

That's why the small rules matter. Losses stack up the same way wins do, so one rule broken on a bad day can undo a good week.

What a small loss looks like

If you want the dollar side of this in more detail, I worked through it in How Much Money Do You Need to Trade MNQ?

If you have a job

While you're learning, the goal is to keep your losses small. Making money comes after that. Three habits help most when your trading time is short:

• Practice on paper first, until you can follow your rules every time.
• Decide your stop before you enter, and leave it alone.
• Stop when your plan says stop, even on a good day.

A short, fixed window makes those easier to keep. I laid out the routine in Making Money With a Full-Time Job.

The course has two whole groups of lessons on this: the rules that keep your money, and staying calm and consistent. There's even a lesson made of student emails called "I Got Wrecked!" If you want the full set, here's what's inside.