Why do most people lose money day trading?

When it comes to trading and investing there you might have come with some doubt any question that is day trading profitable? As there is a saying 90% of people lose money in the stock market, is day trading gambling?

Should I try day trading? If the answer is yes, how to start day trading. Then this article is for you. You need to follow some basic day trading strategies and to follow some entry and exit strategies for day trading.

What is Day Trading?

The act of buying and selling securities intra-day with the expectation of making fast profits within minutes to hours is known as day trading. Day traders come in all shapes and forms, using mechanical to systematic day trading systems, and can place anywhere from one to thousands of trades per day.

Types of Day Traders

Breakout Traders:

Many day traders will trade momentum and focus on day trading breakouts above swing highs and swing lows while others will look to trade reversal setups after gaps.

Reversal Traders:

Counter-trend traders will look for signs that a stock is topping or bottoming out before they place a trade in the opposite direction.

For example, reversal traders use tools such as the TICK, TICKI, Put Call Ratio, volume, etc. to anticipate a change in trend.

Range Traders:

Range traders find stocks that have been trading within support and resistance levels and buy when a stock hits support and sell when it hits resistance. Range traders will be most successful in markets that are choppy and that have no real direction.

Regardless of the type of trader, the most important aspect of day trading is the discipline to follow a set of rules and establish your own money management principles which you live by.

Day Trading Risks & Rewards

With the use of margin, many day traders can leverage anywhere from 2 to 4 times the cash balance of their account. While this can become very profitable, it can also lead to major losses, especially for newer traders who have not established their loss management principles.

In reality, most of the day traders that enter the game lack the discipline to adhere to strict day trading rules and end up losing large amounts of money. These traders can be classified as gamblers.

However, a disciplined day trader can take large sums of money down if they have the appropriate day trading strategies systems and day trading psychology, money management in place.

Day trading is an uphill battle for most because day traders do not only have to place a winning trade, they have to first offset the commissions before they can go into a profit position.

Having a successful trading career not only depends on the trading system or style that you use but also depends on other intangibles, such as day trading time zones.

Understanding the day trading psychology market dynamics during different times of the day will take your trading to the next level.

Think about your trading history and notice if you see a pattern in the different day trading time zones in relation to winning and losing trade percentages. What a day trader must understand is that even if a chart has a great setup, the time at which the trade is placed may be in a day trading time zone which typically starts a countertrend move.

For example, many traders who day trade breakouts will be far more successful during the first two hours of the day than any other time frame during the day.

Typically breakout attempts will fail and reverse which will only serve to frustrate the trader and cause you to doubt your approach to trading.

Let’s now take a look at the different time zones and understand the general market dynamics during each time zone.

Day Trading Time Zones

The opening bell — 9:15 am to 9:50 am

The first 20 minutes of the day are the most volatile of the trading day. While this is the most dangerous day trading time zone, it can also provide to be the most lucrative if you understand how to trade in this time frame. It is usually recommended that novice traders stay out of this zone and wait for the imbalances created from overnight news or earnings releases to settle down. Many technical indicators do not work well in this time frame as the volatility is too strong. In most cases, the volume will also be the highest of the day during this time.

The Morning Reversal- 9:50 am to 10:10 am

The first reversal zone of the day begins at around 9:50 am and lasts for 20 minutes. This is a very important period of the day for day traders. I look for this time zone to put on continuation trades.

For example, a stock may gap down by 10% on the open and then bounce for 10 to 15 minutes coming into this time zone. However, this is where day traders will look for a reversal of the bounce and a continuation in the primary trend.

Once the dust has settled from the opening bell, you will be able to more clearly see what the traders in this security will want to do. The volume will drop off a little bit compared to the open but will still be very high during this day trading time zone.

This time period is my favorite for trading as the price stability returns to the market but volatility is still present for profitable trading. In strongly trending markets, reversals may be small or Non-existent

Low Risk Trading — 10:10am to 10:25am

During this day trading time zone, volatility shrinks again and you want to look for clues in the Dow, S&P, and Nasdaq as to the direction that the market wants to take. This is an opportune time for bigger traders to move the market the way they choose. Watch the tape of the stocks that you track for any indications of direction.

Decision Time — 10:25am to 10:30am

The market will be settled for the most part and most of the day’s volatility will have passed. There may have been a few reversals in the first hour but during this small zone, many traders will cash out of profitable positions and finish the day while others will position themselves for the next move in the market.

I look at this period as a time for consolidation and preparation. The move following this day’s trading time zone can last until lunchtime.

Final Move of the Morning — 10:30 am to 11:15 am

This time zone will be the final major time zone as far as morning trading is concerned. It is safer in relation to the other zones in that technical indicators such as the slow stochastic or RSI will have a more pronounced effect than some of the earlier time zones.

Be careful near the end of this range as it leads right into the lunchtime hour which can start early or start late. A rule of thumb is that the more volatile the preceding day trading time zones are, the greater the chance that this move will extend further into the 11 o’clock hour.

Go Eat your Lunch!! — 11:15am — 2:15pm

Lunchtime trading can be brutal. False breakouts and choppy sideways moves characterize this time period. If you must trade, trade lightly until you have a good track record of putting on winning trades in this time zone. Also, please let me know how you do it! The risk to reward is very high here. The volume will fall out of the market as floor traders and other institutional traders will take their lunches. Don’t let this time zone turn profitable morning trading into a loss.

Back to Business — 2:15pm — 3:00pm

Traders will work their way back into the market during this time frame. For the most part, trends have been established and trading during this timeframe will provide you with opportunities where the use of technical indicators is applicable. Remember, the CME closes at 3 pm so you will see a pickup in volume due to some of the bond traders coming into the equity and futures markets.

It’s GO Time — 3:00pm — 3:10pm

The bond market closes and bond traders will flood the equities markets; watch for sharp moves in either direction. Moves can be fast and large.

Use Caution & Stay with the Trend — 3:10pm — 3:25pm

During this day trading time zone, use caution as you are approaching the 3:30 pm timeframe which tends to produce a reversal or a stall of the prior trend. During this zone, you want to stay with the trend that has been established from the 2:15 pm and even 3:00 pm timeframe but doesn’t get attached to the positions.

Conclusion

Personally, I trade up until about 11:00 am to 11:30 am. The volatility in the morning fits my trading style. That is key; you need to understand who you are as a trader and trade accordingly.

As you can see, the chart setup or systems that you look at are not the only factors in putting a day trade on. Remember, day trading is not absolute; it is a game of odds. Your job is to put the odds in your favor and by utilizing the different day trading time zones that we have discussed, your trading will become a more consistent day trading profit.

Originally published at https://www.traderseyes.com on February 27, 2021.