When done well, day trading can be an effective way to earn money in a short period of time. However, when done incorrectly, it can be an easy way to lose a lot of money as well. Let’s look at some common mistake’s beginners make when they first start trading and you can avoid making them yourself.
They Don’t Have a Defined Trading Plan
To be as successful as the Pitbull Trader, you need to have a strategy. Your strategy will determine what you will trade, when you will trade and what the criteria is for entering and exiting a trade. Having a defined trading plan can take some of the emotion out of your decision-making process, and that can lead to larger winning trades and smaller losing trades.
They Don’t Know When to Quit
Many beginners tend to exit winning trades quickly and losing trades too late. The goal is to let a winning trade ride for as long as possible and cut bait on losing trades as quickly as possible. Therefore, it is important to have a defined entry and exit before buying or selling a stock or commodity. Furthermore, it is always a good idea to take some time away from your phone or computer after a losing trade. This lets you cool off and avoid the urge to double down on a losing trade in an effort to get your money back. In most cases, doing so only results in larger losses and more stress.
New Traders Obsess Over Daily Profit Goals
While it is good to have goals, it is important to realize that the market is always in control. Therefore, there may be days when the market doesn’t hit your price target or set itself up to enter a winning trade. Instead of forcing yourself to enter a trade that doesn’t meet your criteria, it can be best to simply sit a trading session out and wait for more favorable conditions. While you may make fewer trades, the ones that you do make can result in gains of hundreds or thousands of dollars.
Beginners Don’t Realize That There Are No Absolutes When Trading
New traders may have heard about concepts such as the 80 percent rule or that they should sell when price hits resistance. However, they may not realize that price levels are dynamic and that they can be tested and broken at any point. One of the toughest lessons a new trader can learn is that the market can be irrational longer than an individual can stay solvent. This can be frustrating and cause traders to abandon their strategy, but doing so can be a critical error that could extend their losses.
Traders Think That They Can Go It Alone
Ideally, those who are day trading for the first time will have a mentor such as the Pitbull Trader. Having someone to ask questions or simply gain wisdom from can help to accelerate a person’s learning curve. Those who are just starting out may also feel better knowing that even a seasoned professional can be surprised by what the market does. It can also help knowing that a professional was once just a person who was trying to figure out the market and made mistakes while doing so.
They Don’t Practice First
Most brokers offer demo accounts that allow traders to test their strategies using paper money. This can be ideal for those who are still learning how the market moves or are trying to learn how to control their emotions. Usually, spending time on a demo platform helps a trader make better trades with live money.
Day trading can be difficult no matter how much experience that you have with it. Therefore, it is important to have a defined strategy and only risk what you can afford to lose. That way, you can keep yourself in the game long enough to develop your trading instincts and become profitable.