Why Is Short-Term Trading Risky? Why You Can Lose Money Even If You Win 80% of the Time, and the Real Reason Long-Term Investing Is the Preferred Choice

In recent years, short-term trading strategies such as day trading and forex trading have been gaining attention on social media and video-sharing sites as “investment methods that promise big profits in a short period of time.”
However, in reality, it’s not uncommon for investors to see their assets decline, no matter how high their win rate may be.

In this article, under the theme “Why You Can Lose Money Even If You Win 80% of the Time: The Mechanics Behind Losing Money in Short-Term Trading,” we’ll provide a detailed explanation of the challenges of short-term trading and the “essence of wealth building” that beginner investors should understand.

What Is Short-Term Trading?

Short-term trading is an investment strategy in which financial instruments such as stocks, FX, and gold are bought and sold over a short period of time to profit from small price fluctuations (spreads).

Typical methods include the following:

• Scalping (ranging from a few seconds to a few minutes)
• Day Trading (Completed within a single day)
• Swing Trading (ranging from a few days to a few weeks)
• Short-Term Trading in Forex, Cryptocurrencies, and Other Assets

Many beginners tend to think, “If it’s just a choice between whether the price will go up or down, it seems easy.”
However, the reality is not that simple. Short-term
trading is not simply a game of predicting the direction of the market; it is a world that requires advanced skills to meticulously control the margin between profits and losses.

Why You Can’t Win Just by Betting on “Up or Down”

The biggest misconception that beginner investors often fall into is the idea that “if there’s a 50% chance of being right, I should break even.”

It’s true that stock prices can only move in one of two directions—“up or down”—but in reality, the market doesn’t move in a straight line.

[Example] If you expect a stock you bought for 100 yen to rise to 110 yen

In actual market conditions, prices often fluctuate up and down as shown below.

100 yen → 98 yen → 95 yen → 110 yen

If, at this point, you get scared at the “95–98 yen” level and cut your losses (close the position), you’ll end up with a “loss” even if the price ultimately rises to 110 yen as expected.

In other words, in short-term trading, you must accurately control not only whether the price will go up or down, but also all of the following factors.

1. When will it go up? (Timing)
2. How low does it have to go before I can still handle it (tolerable risk)?
3. Where to take profits (profit-taking target)

The difficulty of “cutting losses” is a hurdle in short-term trading

To survive in short-term trading, “cutting losses” (closing a position early to limit losses) is essential. However, setting these stop-loss levels is extremely difficult.

1. When Stop-Loss Orders Are Placed Too Early

• It gets automatically closed out at the slightest drop.
• The price spikes immediately after the trade is executed
• Situations where “the prediction was correct, yet all that’s left is a loss” occur frequently

2. When Stop-Loss Orders Are Placed Too Late

• Endure and weather the temporary downturn
• Just when you can't take it anymore, the market crashes hard, and a single loss becomes massive.

Even if your win rate is high, your bankroll will dwindle in an instant if you lose a large amount in a single loss.

The “Little by Little, Then a Big Hit” Trap That Befalls Beginners

The most common pattern of failure in short-term trading is the “slow and steady, then a big loss” approach.

• Step by Step: Accumulating Small Gains Over and Over Again
• Bam: A single big loss wipes out all the profits you've built up

For example, if you “make a profit five times in a row (wins)” and then “suffer an unexpected heavy loss on the sixth trade (loss),” your win rate will be very high—83 percent.
However, your overall account balance will end up in the red.

People are driven by a strong psychological tendency (Prospect Theory) to “avoid locking in losses” and to think, “If I wait a little longer, the price might rebound.”
This tendency causes them to delay cutting their losses, and a single loss can end up being a fatal blow.

In the world of investing, you can’t succeed based on “win rate” alone.

To consistently turn a profit in short-term trading, it is essential to strike a balance among the following three factors.

No matter how high your “win rate” is, if your “average loss” is too large compared to your “average profit,” your total capital will continue to decline.

[Analysis] A Specific Example of How You Can Still Lose Money Even With an 80% Win Rate

Let’s take a look at “the mechanism behind why your assets can decrease even with an 80% win rate” using actual numbers.

[Trading Conditions (10 Trades)]

• Wins: 8 (80% win rate)
• Losses: 2
• Profit per transaction: 1,000 yen
• Loss per trade: 5,000 yen

[Calculation Results]

• Total profit: 1,000 yen × 8 times = +8,000 yen
• Total loss: 5,000 yen × 2 times = −10,000 yen
• Net Profit/Loss: 8,000 yen − 10,000 yen = −2,000 yen

As you can see, this easily explains the phenomenon where your money decreases even though you’re winning 80% of the time.

What really matters is the concept of “expected value.”

What professional traders value most is not the win rate, but “expected value.”

What Is Expected Value?

The expected (average) increase in capital when a particular trading strategy is repeated numerous times over a long period.

Even if your win rate is only 40% (meaning you lose 60% of the time), if you can trade in a way that “wins big when you win and loses small when you lose” (maximizing profits and minimizing losses), your expected value will be positive and your assets will grow.

Conversely, even if you have an 80% win rate, as long as you’re making trades where “profits are small and losses are large,” your expected value will be negative, and the more you trade, the more your capital will be eroded.

Psychological Reasons Why Beginners Can’t Succeed at Short-Term Trading

The fundamental reason why beginners fail at short-term trading lies in human “natural emotions.”

• When you're making a profit: You get scared and start panicking, thinking, "I want to lock in my profits quickly" (= your profits shrink)
• When you're losing money: You can't accept reality and cling to the idea of "waiting until it recovers" (= which only makes the loss bigger)

If you trade based on your emotions, you will inevitably end up with a pattern of “small profits and large losses.” Even for professionals, it is a difficult challenge to completely set aside
their emotions and consistently follow mechanical rules.

That is precisely why “long-term investing” is recommended.

While short-term trading is challenging, there are clear reasons why many experts and financial planners recommend “long-term investing.”

The Main Benefits of Long-Term Investing

• Don't let yourself be swayed by daily chart analysis and price movements
• You can keep costs such as trading commissions and spreads low
• It makes it easier to avoid mistakes caused by emotional trading
• Maximize the "power of compound interest" over time

In particular, “regular investments in index funds” using the new NISA are a strategy that even beginners with limited knowledge or skills can easily replicate.

Rather than getting caught up in the ups and downs of the market and trying to make money in the short term, you’ll ultimately have a much higher chance of success by growing your money over the long term in step with global economic growth.

Summary: In short-term trading, “money management” is everything—more so than “win rate.”

Short-term trading isn’t just a game of predicting whether prices will go up or down.

• Even if you win 80% of the time, your assets will decrease if a single loss is large enough.
• What matters isn't the win rate, but the overall expected value based on "win rate, average profit, and average loss."
• Beginners who are easily swayed by their emotions are more likely to be knocked out of the game by the “slow and steady, then sudden crash” pattern.

If beginner investors jump into short-term trading without careful consideration, they run the risk of losing the hard-earned assets they’ve worked so hard to build up in a single major loss.

The best way to safely protect and grow your assets for the future is to start by building your wealth through long-term investing and take the time to thoroughly learn the basics of how the market works and risk management.