Avoiding Day Trading Mistakes
Whether you’re new at day trading or have been involved in trading for months or even years, it can be a worthwhile exercise to step back and review your trade strategy and consider potential for improvement. There are unquestionably more ways to lose money day trading than there are to make profits, which makes avoiding mistakes crucial to your success and profitability.
Consider some of the more common mistakes:
Paying excessive fees: be sure you understand the fees that you’re paying to brokers or online brokers for transactions and asset management. When you’re trading in a fast-paced environment and often for many small gains rather than a few larger profits fees can quickly consume a relatively large portion of your earnings. Compare online brokers not only for their service offerings but also for their fee structures.
Buying too high: timing is everything in day trading. Make sure you have the tools that allow you to detect the optimal time for your buy and sell orders, and understand their use. Quick and accurate execution of orders is critical to achieving the gains you expect.
Quality: many traders jump into company stocks that just “feel right” with a low introductory price only to find that they have not purchased such a bargain. Do your homework to find out as much about a company or commodity as possible while you’re watching for the right price. A low price for low value is not what day trading is all about. You want an asset that will appreciate into at least a reasonable profit for your efforts.
Knowledge: if you don’t understand the business or business model of the target you’re considering, don’t buy it. It’s important to be aware of the trends or economic factors that will influence the value of your purchase. Without that you’ve just become a gambler as opposed to an informed trader.
Don’t believe the hype: watching markets will expose you to myriad offerings for the “chance of a lifetime” or investments that are “risk free”. This is a red flag that even new traders should avoid. All investments are at risk. A basic strategy of trading is to understand your risk tolerance and making informed decisions with the right timing for buying and selling. Even if you receive a tip from a reliable source that holds promise and fits into your investment strategy be certain that you have your own tolerance in mind. The source of that tip may be present to entice you to buy, but will it be there when the time is right to sell?
Planning: don’t make the jump into a buy without having a set idea in mind of what your entry and exit prices will be for that purchase. Know your stop loss point as well, to avoid significant loses that erode any gains you’ve realized during a trading session.
Keep your expectations real: anticipating becoming a millionaire in a few weeks, months, years, (or ever?) is not realistic. Day trading can certainly be a profitable endeavor, but don’t delude yourself with the thought that you are so much better than average that you will quickly accumulate vast wealth. Dreaming otherwise will only lead to discouragement and possibly abandoning day trading altogether.
Avoiding Day Trading Mistakes
Learn at least the basics of day trading from reliable sources that include books, classes taught by successful investors, and reputable internet content. Start slowly and with reasonable expectations. Utilize a credible online broker for your trades that offers high levels of service and support combined with a reasonable fee structure. Make sure that the online broker’s services are available when and where you need them. Road warriors (mobile traders) will want to ensure access is available securely at any location from which they’re likely to execute orders or monitor activity.
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Disclaimer: SureTrader Blog is not intended for U.S. persons. Stock information is not to be viewed as buy or sell recommendations.