The life of a day trader can be either very rewarding or extremely perilous. For anyone looking to sell you a day trading plan, they will certainly make it seem like a glamorous life filled with easy profits. That is, of course, not the case. Before beginning your trading journey consider these top 5 day trading mistakes to avoid so you can become a profitable trader.
Instead, successful day traders know that their days are mapped out with a specific trading plan, knowing full well that there will be losses. However, the day trader also knows that the losses are part of the business, and a loss is nothing different than a profit.
The answer is to ensure that key mistakes (and a losing trade) are not made in setting and executing the trading plan so that the profit days far outpace the losing days. The following provides some practical steps when day trading on the financial markets, and how to take steps and develop a strategy to avoid common day trading mistakes.
Sound Principals of a Successful Day Trader
One of the most important things a successful day trader does is avoid making common mistakes and, instead, apply sound principles to their day trading strategy. These principles include the following:
1. Don’t Trade Against the Market:
More investors mean more losers. The retail day trader commonly attempts to trade against the market. The better approach is to follow the large players in the stock market. There is nothing wrong with being the small fish in the big pond, so long as you are imitating what the big fish do. Experienced traders follow the institutional funds for a reason.
2. Don’t Buy Based on Gut:
Many day traders trade based on gut, which ultimately turns into losing trades. You cannot do this. Successful day traders apply trading strategies based on confirmations, and a strategy that has been tested, and tested again. This requires proper education and practice, and once the education and practice is there, the day trader has greatly improved the risk to reward ratio.
3. Don’t Trade Beyond Your Means:
An experienced day trader will not place trades that he or she cannot afford to lose. For example, if you have $10,000 in your account, and you lose it all, but that loss doesn’t affect your day-to-day budget, then that is ok. However, if you are conducting trades and you lose all the money in your account, and you then cannot afford to make basin monthly bills, that is a losing scenario. Essentially, it is important not to trade with borrowed money, or money need for bills. The better trading strategy is simply to trade with money that you can afford to lose.
4. No Planned Entry, Exit, or Stop:
A consistently winning trader trades with a plan. If you are trading without a plan, your plan essentially is to lose money and fail. With no plan, you will end up chasing trades, chasing hot stocks, trading based on gut, and many other pitfalls. These must be avoided. Successful trades are made with an understanding of when to enter the market, when to exit and when to place a stop loss. This plan must be in place from the opening to the closing bell, on every trading day. A winning trade is a trade made with a plan.
5. No Mentor or Expert to Teach or Train You:
Most traders that aren’t successful have no investment advice and really don’t know how to day trade. It is important to have an investment advisor and platform to learn, in a step-by-step process, to handle risk management, conduct technical analysis and follow strict rules. Without such a mentor, it is extremely hard to out-trade the competition.
Day Trader Psychology / Risk Management
For a successful day trader, risk management has to be on point. Risk management first, and then day trading second – the concept is not to make more money; the concept is to make one trade at a time using an established trading program.
A day trader must manage unrealistic expectations. Waiting is the most difficult part. Fear of missing out must be handled. A bad trade must become normal. Simply put, day trading must become boring.
Overcome Addictions of Day Trading
If you really want to succeed when it comes to day trading, you have to get past “overtrading.” People in the stock market, especially new traders, are looking for immediate returns on their investments. They start to neglect their education and ignore the risk reward ratio of trades they are making.
For example, if you are trading too much, and for example, start to eye a fast-moving stock looking for a quick profit, this trade likely is not part of a planned day trading strategy. Rather, this action is more likely based on emotion, or some other trigger, and not following a planned strategy.
Another common mistake is a trader will start trading stocks based on a newspaper article. Trading stocks or options (or other assets) based on indicators such as current events is not a strong strategy and likely will lead to a losing position on many trades.
Again, such action is not based on how the stock market works. It is based on emotion and old news, and a desire to make trades based on emotion, rather than a planned trading strategy.
Practice Makes Perfect
People who are starting out in the day-to-day stock trading need to persevere and continue to educate themselves. Many people who become involved in day trading simply do not spend enough time learning the craft. It takes many MANY hours of trading, including trading “paper money” to learn the many variations that the market can present. This is a basic concept but is critical for those who want to invest in the process.
For those very interested, there are companies that offer trading programs where you can practice these day trading concepts without risk. One of these platforms is offered by TD Ameritrade and is known as thinkorswim.
FOMO stands for “fear of missing out.” For those who are in the day trading market, and also for those who monitor social media accounts, this is a very common problem. Essentially, people in the market can become affected by “chat rooms,” social media posts, direct messages from “specialists” with targeted marketing campaigns, and many other sources.
These efforts by marketing companies (and other more salacious actors) can sometimes affect a day trader’s decisions to enter and exit the market. It is extremely important to stay committed to a sound day trading program, one based on research and learned professionals, so that the day-to-day trading activities do not lose focus.
Summary: Day Trading Mistakes to Avoid
Day trading is not overly complicated. It’s just practice. Unsuccessful day traders do not further their education. They do not practice. This happens even though there are programs available to understand when to make trades, regardless of the type of your market order. Again, as discussed above, an excellent day trading program is thinkorswim, which is offered by TD Ameritrade. There are other similar options, but the key point is that the trader must practice executing day trades even when the market is closed. Practice makes perfect, or close to perfect (meaning good trades, good investments) and year-to-year profits.
Looking to Learn
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
Feel free to check out other FREE educational resources to help guide you as you begin your new journey to financial freedom.
Also, download a ( FREE E-BOOK ) by Maurice Kenny DAY TRADE LIKE A MILLIONAIRE.