Top 5 Reasons why Intra-day Traders Lose Money!

Mar 08, 2016 | 11:56 AM IST

Buying and selling the same stock on the same day before the market close is called a day trading. Positional trading is where the stocks are held for more than a day.

Day traders are mostly retirees, housewives, professors, students, small business owners, doctors etc. who may have a little extra time and flexible day schedule. Bullish markets create euphoria on Dalal Street and become magnet for prospect of making fast money. Intraday trading gives instant gratification to these traders since they can make a profit in a few hours or sometimes in minutes. Very few day traders, especially professional traders, make profits on a regular basis. Unfortunately, most of the retail investors make significant losses in intraday trading over a period of time.

trade 1. Greed and fear becomes your enemy

You have to be extremely disciplined with intraday trading. One of the keys to success in intraday trading is a having and executing a stop loss and target plan. However, staying with plan is not as easy as it sounds. Prior experiences with profits and losses can create greed and fear. These emotions often cause irrational behavior and are the biggest obstacle to stay disciplined and execute as per plan.

If we are making losses, we think that, if we hold on to our positions a little bit longer, prices will recover. While this is one of the most common mistake retail investors make, they often make a bigger mistake. They buy additional shares at a lower price, to average the purchase price. This often is a good strategy for long term investing but time is not on the side of intraday traders. If a stock is on a downward trend, then it can move further downwards causing bigger losses. Just as traders should not hesitate from booking losses when trades go wrong, they should book profits when the shares reach their target. If trader feels that there is more upside to the stock then target and stop loss should be reset.

2. Daytime responsibilities take away focus

Intraday trading requires time commitment, from opening bell to closing bell every day. You should be focused enough to monitor what is going on in the market, almost on a minute to minute basis. If you have other time commitments that require most of your attention during market hours, then intraday trading is not for you. It’s difficult to be successful day trader without being glued to the screen during market hours. You will neither be able to do focus on trading not your other daytime commitments unless you are a professional trader. Most traders don’t account for Intraday ROTS (Return on Time Spent); stay tuned for the article on this topic.

Lack of focus often creates challenges in making timely decisions and trade execution which is absolutely necessary to the success in intraday trading. Trades are often not executed in timely manner even if you subscribe to a good tips provider and this further reduces potential gains.

The study was published by University of California, Berkeley in 2010 of hundreds of thousands of day traders from 1992 to 2006. This study showed that less than 2% of traders were profitable net of all fees. Read more @ https://goo.gl/6mnnAX

3. Stress is bringing the worst out of you

Markets are notoriously unpredictable in the short term. Intraday trading is a daily emotional roller coaster and can be highly stressful. In a stressed-out state of mind, you may become irrational. In this state of mind, your ability to follow your trading plan, if you have one in the first place, will be impaired. Even if you are normally, a confident person, a string of losses over few consecutive days, can have an adverse impact on your mental state. This in turn, can have an impact on your interactions with your family and friends, and in some cases, may even have an impact on your health, especially if you pre-existing medical conditions like diabetes, high blood pressure, asthma etc. Most day traders are unable to cope up with the high mental and physical strain after initial excitement and honeymoon is over with intraday trading.

4. Most intraday tipsters are in it for themselves

Another threat to being a successful day trader is the intraday tipster community. Many times a desperate trader is hunting for profits and falls prey to unproven tips providers. Most of these tips providers are small proprietary firms with 1-2 employees and no real research analyst team and back office necessary. These providers know their tips don’t work and most of their subscribers don’t renew the service so they try to lure new subscribers with phony claims of consistent gains. Tips from unproven providers can lead to more losses but there is a bigger threat. Traders tend to shift the responsibility of loss to the tips provider instead of analysing the causes of loss. The blame makes you feel victimised and appear innocent but losses continue!

5. Leverage is a double edge sword but broker always wins

Most beginner traders start with a very small amount of capital and use significant leverage (often 10 times) to generate quick profits in a very short period of time. Time is not on trader’s side and this combined with high leverage makes intra-day trading a lot more risky than investing. An unexpected movement can wipe out significant capital in a day. In January 2009, the Satyam Computer scrip fell more than 80% from Rs 188 to Rs 31 in one day. If a scrip falls 10% and trade is 10X leveraged then you could lose all the capital in a day. Brokers tend to promote intraday and leverage since they can make a lot more brokerage fees per trade. If you are using tips provider then tips fees along with brokerage can quickly eat into your profits and capital.

As you know by now, intra-day trading doesn't work for most investors. Share prices are dependent on many complex fundamentals and macroeconomic factors along with technical charts. Intra-day trading is purely based on technical charts. Most successful investors such as Warren Buffet and Rakesh Jhunjhunwala are not traders but long term investors. Once they identify good multi-bagger stocks; they keep it for few years in their portfolio to get many fold returns.

You can either invest for on your own or use our Multibagger Stock Picks research service. If you don't want to wait for many years to see results then we also provide shorter duration version of multibagger product i.e. v360 stock picks which allows you exit positions in 3-6 months when they get fairly valued in the short term and re-investing in other undervalued stocks.

Niveza India Pvt. Ltd. is a SEBI registered equity research, advisory, and financial technology firm with more than 100 employees and multiple offices based in Pune, India. We are the fastest growing equity research firm in India and provide research calls based on vScore; a machine learning and predictive analytics technology developed by us. Our research calls are backed by highly rated service and money back guarantee.

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Niveza Editorial Desk : We are a team of stock market nerds trying to stay ahead of the herd. We spend our grey cells everyday to pave a smooth road for our clients in the shaky world of stock market. While...
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