A lot of people who have
discovered the pot of gold that is financial investment are inspired by gurus
and mentors who have made thousands of dollars in day trading. Some of them
hear an inspirational talk or two, but they never really get into the
nitty-gritty of things by understanding how day trading works.
Although the basic principle of earning (buy low and sell high) is fairly
simple, there are more hoops that a beginner trader needs to jump through. If
you are someone who wants to avoid the pitfalls and bad moves that beginner day
traders make, then this is the place to start. We will be discussing the most
common mistakes that new traders make, and how you can avoid them.
Common Mistakes that Beginner Day Traders Make
Lack of directive or a solid plan
The first mistake that beginner day traders make is the lack of a solid plan in
their trading. Experienced traders incorporate a single, specific strategy in
order to make gains in their investments. A common mistake for new day traders
is simply putting in a sum of money in a particular stock, cryptocurrency, or
any other form of investment that seems “popular” without really
considering why they should do it in the first place.
According to Pitbull Trader, Doron Rosianu, it is important to stand on
the shoulder of giants. When you find a successful day trader who can mentor you, you can learn different strategies that will help you
succeed as well. Although it can be exciting to reinvent the wheel, it may be
helpful at the beginning to learn the ropes from others who have already
succeeded in day trading.
Inability to handle risk
Some investors get a lucky break early on and falsely believe they are
untouchable. They think the hot streak will continue indefinitely but are
eventually driven off course by a major loss or two. These traders often take
this as a sign to step back from day trading altogether.
Why is this so? According to Doron Rosianu, the possible cause is that new
traders never develop their tolerance to risks. Some people are innately
high-risk takers who are comfortable with high-risk/high-reward situations,
while some prefer low risk with steady gains. You have to be honest with
yourself about how much you can risk with your investments, and how you will
handle any eventual downfall.
Have a healthy mindset before becoming a day trader–it is important to know
how much risk you are willing to take before you ever begin. Sometimes, your
risk tolerance is what defines what kind of stocks you will be purchasing as a
day trader.
Lack of goals
Another common mistake made by beginner day traders that causes them to lose
money or become disappointed with their earnings is the lack of purpose.
When it comes to any occupation, you must be able to provide and review the “why” you want to do it–and this includes day
trading. Are you planning to buy a house, buy a car, or save up for your
retirement? This can also predict what kinds of investments you want to consider,
aside from shaping your risk tolerance.
If you plan to save up for a house, it can be considered a medium-term
investment. Longer investments such as retirement would also require a
different strategy. The bottom line is, you must know your specific goal and
how much money you want to make to achieve that goal.
Allowing losses to accumulate
According to the Pitbull Trader, this is another mistake of beginner day traders. Some day
traders hold on to the hope that they can redeem their losses by holding an
investment as it plummets. Experienced day traders know how to quickly cut
their losses and review in order to reduce the risk and re-do their strategy to
gain more profits.
Beginner day traders should understand that investing in this manner requires a
quick mind and solid decision-making skills. This can be achieved through
extensive research, knowledge of the market, and finding a mentor who can give
appropriate advice of when to sell an investment to prevent large losses.
Placing needed savings in day trading funds
Some day traders are tempted to recuperate their losses by placing much-needed savings in their
day trading funds. This is a recipe for disaster and may make you end up losing
even more and going into debt. It is important to have a set amount of funds
for your day trading needs, but never try to get it from your much-needed
savings account.
To help develop this mindset, always place a specific limit on how much you can
transfer. Your profits should be the source of your additional investments and
not money from your savings account.
The Pitbull
Trader suggests that you keep
in mind these strategies, and it will surely help you become a successful day trader.