Navigating the choppy waters of the stock market as a day trader can be challenging. While few lucky or experienced ones have managed to amass enough wealth in the stock market to indulge in luxuries like Lamborghinis or extravagant vacations in the Bahamas, many who have attempted to build wealth this way have only put dents in their wallets.
According to a study by the U.S. Securities and Exchange Commission of forex traders, 70% of traders lose money every quarter, and traders typically lose 100% of their money within 12 months.
Matthew Schneider, ex-stock market trader and CEO of e-States, has personally experienced the highs and lows of the stock market.
“I’ve lost my life savings five times in day trading,” he said. “Granted, I’m only in my twenties, so it wasn’t the end of the world, but it certainly felt like it. In terms of hard losses, I’d sunk close to $40,000 by the time I was 19 and almost $200,000 in unrealized gains.”
While losing his life savings multiple times throughout his career as a stock market trader was certainly not easy, Schneider has managed to bounce back from each financial blow and turn his hefty losses into valuable lessons. Here are four things Schneider learned from losing thousands of dollars in the stock market.
Confirmation Bias Is Real
Confirmation bias is a tendency to interpret information in a way that reaffirms our initial hypothesis. Many day traders — even experienced ones — fall victim to this cognitive bias, especially after creating a plan and entering a trade. They become so blinded by their preexisting notions that they fail to see the full picture.
When Schneider was a day trader, every stock setup looked good to him.
“Our technical and fundamental analysis is always biased towards our interest, confirming what we want to be true,” he said. “For this reason, all of my moves seemed proper — or else I wouldn’t have made them. But you have to detach and try an alternative perspective, or else you might have convinced yourself of something that isn’t true.”
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Sometimes, Good Decisions Still Lead to Bad Outcomes
Despite making what he believed to be good and informed choices during his trading career, Schneider discovered that it did not always guarantee favorable outcomes.
“This is a classic rule for gambling: You can act incorrectly and still come out on top or act correctly and still lose,” he said. “There isn’t always a clear correlation between our strategies and results, so it takes a lot of failures — with emphasis on A LOT — before you can recognize a legitimate trend.”
Sometimes, luck may just not be in your favor, so don’t kick yourself if your trading strategy doesn’t turn out the way you intended. Think about it: You can make a well-researched real estate investment a week before the most devastating hurricane of the decade. Life is unpredictable, and so is investing.
A Little Bit Adds Up to a Lot
Chasing short-term gains instead of focusing on consistency and profitability over the long run can come back to bite you. As an ex-trader who has lost thousands of dollars throughout his career, Schneider learned this crucial lesson: A little bit can add up to a lot.
“I was always chasing the massive gains that could multiply my portfolio tenfold,” he said. “And trust me, when you have just one of those days, it becomes your sole interest. Watching thousands of dollars seemingly magically appear in my brokerage account filled me with dopamine, but it never lasted.”
Though he admits to the lure of chasing life-changing gains, Schneider now views this approach as one of his biggest regrets. The lesson? Don’t be blinded by the possibility of an enormous gain. Instead, trust the process and aim for consistency and profitability over time.
Outsmarting Your Emotions Is Tough
When traders see their portfolios wiped out by massive losses, it’s often normal for them to panic and make impulsive decisions or engage in revenge trading. If you’re a beginner trader, you may convince yourself you can outsmart your emotions, but Schneider warns that you’re probably just as emotional as 99% of the other traders.
“Whether it’s beginner’s luck or a superiority complex, we feel that we can outsmart the rest of the investors trading the same stock as us,” he said. “We see something they don’t. We’ll make a move before they do. We can predict how the market will feel about something, but it’s most likely all wrong.”
Though you can try to control your emotions by understanding your emotional triggers, it can be challenging when your life savings are on the line.
The simplest way to not let your emotions get the best of you is by decreasing the emotional effect of your trades and lowering your trade size. Another way is to establish a solid trading plan that you stick to regardless of market fluctuations and how you feel.
Losing Money Day Trading Is a Learning Opportunity
Though Ben Waterman — co-founder of Strabo, a global consumer portfolio tracking platform — has not personally lost thousands of dollars day trading, as a financial adviser, he has worked with many who have.
“Losing money day trading is an opportunity to reevaluate your knowledge and skills,” he said.
So, while it’s normal to feel down after losing a significant chunk of your savings, don’t let the setback stop you from upskilling.
Waterman suggests that you study market trends, learn technical and fundamental analysis, and understand the factors that influence the assets you trade.
“By improving your understanding of the markets,” he said, “you can make more informed decisions and increase your chances of success.”
He also recommends keeping a trading journal to record your trades, strategies and outcomes so you can identify patterns, strengths and weaknesses to refine your trading approach.
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