The Key Reason Day Trading is Mastered by so Few

Many people are drawn to the allure of making easy profits via day trading, but for the majority of folks who venture into it, sustained success is elusive. Rather than being easy, most find it difficult if not impossible to accurately buy and sell to make a profit, much less a living.

The golden rule of trading or investing is to buy low, and sell high- a pretty straight forward and simple idea, that in reality can be much more complicated to execute. Many trading books offer the guidelines of how to read chart patterns or mathematically analyze the market to determine the best times to buy or sell. There are even software programs that supposedly do the “thinking” for you and give you buy/sell signals.

Despite all this additional help, the classic “buy low/sell high” maxim is still deemed to be highly elusive to the vast majority of folks that result in such commonly accepted statistics as 80% of all day traders have more losses than gains. How can this be with all the extra information out there showing folks when to buy and sell?

The answer is – the market isn’t a fixed entity that has absolute movement independent of all its participants. Rather, it moves according to what all the participants do, meaning the actions of people trading the market also collectively affects the market.

This means a trader or investor is really trading with or against all the other participants in the market. For a market to rise, buyers have to be more aggressive than sellers. When the market falls, selling dominates over buying.

Therefore, to make money in a rising market means you need to get in early at the lows, and sell near the highs- a seemingly simple enough task, but the problem is everyone has the same idea. So for example, let’s say the market is projecting a move that looks like it will move down three points, then up ten points.

The potential market move is seen by many, so will the market react as expected? Likely not, and here’s why:

1) The “low” is determined to be three points down, but there are market participants who may decide to buy early to be sure they get a position, so may they buy at 2 points down instead. If you have enough people buying early, the market won’t go down three points.  So those who were waiting to buy at a drop of three points will likely not get a position.

2) Once the market turns and rises, some folks may not want to wait for it to rise 10 points because they want to be sure they can lock in a guaranteed profit, so they sell early. If enough folks so this, the market may not rise as high as anticipated and those who wait too long might see the market reverse on them for a loss.

So it becomes clear that investors/traders are really trading against the behavior of others in a auction like environment. The feelings of greed and fear can also push the market into extended ranges as well.

So “buying low” equates to getting in ahead of other buyers, after the major selling has subsided. “Selling high” means getting the jump of selling before others after the bulk of the buying is done.

This means a good trader/investor is buying while many others are still thinking about selling and selling while they are still in buy mode. In other words, you have to train yourself to think differently than the “herd”  thoughts of folks buying/selling

Making your thought process independent from the majority is a key requirement for successful trading. It’s also important to be able see see upcoming moves without needing to see much confirming market action. Every confirming action means more people will see the same projected move as you. Ideally, you want to be one of the early buyers ahead of the pack and the same goes with selling.



2 thoughts on “The Key Reason Day Trading is Mastered by so Few

  1. The broadest definition of trading is an exchange of goods or services. When you go shopping you are trading your currency for food or other items you buy.

    Financially speaking, trading refers to the buying and selling of market products such as stocks, bonds, metals (gold, silver), or other financial products being offered on the market.

    Trading boils down to buying a stock or what have you at one price, with the intent of selling it at a higher price for a profit.

    I’m not a professional in the industry such as a stockbroker or investment banker, but I trade on my own.


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