6 Costly Mistakes New Day Traders Should Avoid
6 Costly Mistakes New Day Traders Should Avoid
When traders first start out in the stock market, some common mistakes are made over and over. To avoid falling into this trap, you should always learn from any of your early mistakes. And always remember, there is no such thing as a perfect trader. You will make mistakes as you explore the world of day trading. Let’s take a look at some of the most common mistakes that new day traders make and how to avoid them.
Becoming Biased
In the course of researching whether or not a company is a good trade, you may convince yourself to stay invested well beyond the point of return. This encourages emotional thinking, which spells a recipe for disaster when day trading. One of the challenges of trading on technical analysis is making calls without emotion, based purely on the facts available. You should be focusing on the price action and ignore any thoughts about how you think a company should be performing. Leave your own biases out of your trades, and you will find yourself making more profitable trades every single time.
Chasing Lost Money
Another common mistake new traders make is throwing good money after bad. What I mean by that is traders don’t address their biases and continue to follow the losing position. Carefully monitor your performance and follow your stop loss strategy (you do have one, don’t you?) to avoid chasing lost money. If you are stuck in a losing trade consistently, it’s time that your strategy be adjusted before you make any more live trades. You should always be looking to add to your winning trades rather than your losing trades. But if your wins don’t add up to more than your losses, you’re not a successful day trader. Keep that discrepancy in mind when adjusting your strategies.
Trading Less Is More
Another common mistake that green traders make is trading for the sake of trading. The more frequently you trade, the more likely you are to end up in a losing trade. Your trade volume should never be a metric by which you measure your success because trading less is more. As a day trader, you should be focusing on your prime setups instead of trying to nail everything that comes across your stock screener. Keep this in mind to avoid making costly mistakes down the road.
Adding Before Confirmation
Another costly mistake for newbies is not taking a winning position before letting the stock run. You can ruin your average and get shaken out of a trade by not mitigating risk on trades that are already successful. Day trading stocks move lightning quick and a profitable position five minutes ago can quickly devolve into a losing one. Setting reasonable stop-losses will help you take profits of the percentage in your strategy while still letting the market run.
As you can see, there are a variety of mistakes here that can trip up even the most seasoned investor. To avoid making these mistakes repeatedly, recognize your biases and adjust your trading strategy accordingly.
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