Day trading is an exhausting yet rewarding career. It is a job where individuals often handle thousands or even millions of dollars daily. Many people who do not work this job have misconceptions about what exactly it entails. Such misconceptions make it difficult for new entrants into the field to get started. Here are some of the common mistakes that new day traders face and how to avoid them.
Inflexibility
Many amateur day traders have a certain amount of inflexibility about their ideas and goals. They have a handful of stocks or commodities that they believe are true winners. There is almost nothing that can cause them to deviate from these securities. In those cases, it is difficult for a day trader to continue making money over a significant period of time.
Instead, day traders need a flexible approach. They need to always be scanning the market and looking for different opportunities and warning signs. Once those warning signs occur and those opportunities pop up, they need to be able to leave their positions in certain securities and move on to others. Plans should be written and rewritten on a regular basis. If a plan fails completely for an extended period, individuals need to be able to quickly craft and adapt new plans.
Poor Planning
New day traders often have both an inflexible and an ill-conceived plan. They do not spend the amount of time necessary to craft the best possible day trading plan. A good day trading plan requires hours and days of practice and preparation. Individuals must have contingency plans for every potential movement of a stock or another type of security. They have to know what they will do after earnings reports, stock splits, and a certain group of news events.
Many day traders use a computer program that will give guidance on these moves. They must update their charts and guidance as economic factors change. Many prospective day traders are overwhelmed by this level of effort. They may not have training in personal finance, accounting, or statistics. These individuals often want to move towards the highest profits as quickly as possible. Poor planning can be the recipe for margin calls and other developments that can end up tanking a day trader’s plans.
Greed
Day traders are often derailed by their greed. They work with massive money totals daily. In many instances, they buy and sell amounts that were the total of their previous yearly salaries. This situation often makes individuals excited and greedy. The Pitbull Trader knows that these new traders want to accumulate as much money as they can as quickly as possible. In pursuit of this goal, they sometimes take unnecessary risks or flout laws and regulations.
Day traders have to curb their greed before they even start with this profession. The risks from bad bets and poor trades are massive. Individuals can only make trades and decisions if they are well-researched and part of an overarching plan. They should plan out both the amount that they want to risk and the amounts that they would eventually be happy to make. Taking too much money off the table could ruin a bet or doom a person’s reputation as a day trader. Illegal actions can result in jail time and the loss of day trading privileges for years or even life.
Conclusion
The Pitbull Trader notes that day trading is a potentially lucrative business. Individuals have made millions of dollars and founded long-term careers off the practice many times before. These individuals have proven their research and discipline over a period of years. By avoiding the mistakes that most inexperienced day traders make, new day traders can ensure that they keep their profits and chances for success as high as possible.