6 reasons why intraday traders lose money

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By engaging in intraday trading, you could potentially be making money within a few hours. However, contrary to popular belief, successful intraday trading is not about luck. Approach it with that mindset and you could be in for big losses. If you find your trades are generating losses more often than not, you could be doing something wrong. Here are some common intraday tips to explain why day traders lose money.

  1. Your decisions are ruled by emotion.

An intraday trader cannot afford to be driven by emotion. It can lead to irrational trading decisions. When things are going well, you may want to hold on and book more profits. But right then, the trend could reverse and hurt your bottom-line. Or, you may be stressed about a loss you have incurred and are overtrading aggressively to recover that loss. The ability to keep emotion at bay is a key quality of a successful day trader.

2. You have no time for research.

If you are intraday trading on the side, make sure to devote time to reading technical charts and doing data analysis. It is not just about showing up on the trading platform and executing orders. To execute winning trades, you need comprehensive knowledge of how your chosen stocks are moving. Without research, you will lack the ability to make effective trades. 

3. You are wholly dependent on tips.

Don’t blindly trust intraday tips from just about any source. Not everyone has the research backing or the ability to make those recommendations. If you need stock recommendations, open an account with a large broker like Kotak Securities that has a separate research division. Even then, double-check the information based on your reading of the charts and data before entering a trade.

4. Your margin use is faulty.

Margin funds from your broker are trading loans. As with all debt, you should be careful. Trading margins allow you to purchase more stocks than you can currently afford. But trades can and do go wrong. So, you should limit how you use margins. Ensure that you can afford to bear the losses in the worst-case scenario.

5. You bet against the market.

Since your window to trade is very short, avoid the urge to move contrary to the market trend. You will find that the market moves in waves. As an intraday trader, your job is to hop on and ride those waves. You should be able to make one or two trades before the trend reverses. 

6. You have no exit policy.

Setting up clear stop loss and profit targets in advance ensures that you exit the trades on favourable terms. Successful risk management is a key tenet of day traders. For instance, many traders place stop loss triggers to avoid losing 2–3% of the capital invested in each trade. And if the overall loss for the day amounts to around 4% of their total capital, they might discontinue all trades for the day. One can always try again the next day.

Summing up

If you wish to earn a steady income stream from intraday trading, you will need to develop in-depth knowledge of the markets, learn to read trading charts and indicators, keep up with news flows, and more. Beginners could open an account with large brokers like Kotak Securities to access their intraday research and educational material. Many traders also maintain a trading diary to measure the strengths and weaknesses of different trading techniques.