Becoming a day trader is by no means an easy task. Becoming a part of the stock trading world is certainly very interesting and exciting, given the fact that it can be very lucrative. You can make a lot of money by trading and that is the main reason people try and become a part of this world. A great upside is always a good motivation, however, the potential financial gains can make you irrational and therefore make some mistakes along the way. Unlike mistakes in other fields, mistakes in day trading can leave great consequences.
People may become distracted by large sums of money and potential gains, they start gambling with their investments. The worst thing you can do is think of trading like a lottery or a gamble. Trading is by no means a gamble and stocks are not bets or odds. There is no element of luck when it comes to dealing with stock. Never bet on stocks or put all of your eggs in one basket – that is not how this works. If you could predict the future and go all-in on a single stock, everyone would be a billionaire.
Being successful in the stock market requires a great deal of preparation, knowledge and discipline. Don’t expect to strike gold or hit the lottery right away, you don’t become rich fast. Success is very much an option when it comes to trading, but like with everything else, it requires time and effort. You must work both hard and smart if you want to be successful, the same as with anything else.
With that in mind, let’s go over some of the most common mistakes beginners make when it comes to day trading.
1. Starting trading without preparation
Like we’ve mentioned before, day trading is not a gamble or a lottery. There is no chance you’re going to get rich by chance. Luck is not a factor here. Sure, it can be beneficial, things happen, but it should never be the thing you depend on. With that being said, you need to be prepared before you start trading.
The first thing you need to learn is how the market operates. You need knowledge of the stock market, what you are looking for, which stocks are best for day trading, how investments and returns work and more. There are a lot of materials on the subject. You may learn from books, seminars, online classes, video material and so on. Talk to the people that are working in the field. Talking with someone that does this for a living and picking their brain is one of the best things you can do as a beginner. This is not something you can learn as you go. Of course, you will learn as you go, that’s natural, but you’ll upgrade your knowledge. Becoming a trader with no prior knowledge whatsoever is one of the biggest mistakes you could make.
2. Not having the proper tools
You might feel like you don’t need any tools for a craft like this, but you’d be wrong. Just like a musician cannot create a song without an instrument, you can trade with the proper tools. Naturally, we’re not talking about tools like hammers, nails or wrenches, you definitely don’t need those to trade, but you need other kinds of tools. We are talking about brokers, trading software, books and other educational resources and many more. Make sure you’re equipped with all of those before you start trading. You’d be surprised at how useful a broker is. Learn more about them and see for yourself why they’re an essential part of this process.
3. Going all-in
Like we’ve said, trading is not a gamble and stock market is not a global casino. They might seem similar in a way where you can make an insignificant amount of money into a lot, but the method behind it is much different. People do realize that their chances of winning a jackpot on a slot machine are slim, but what they don’t realize is that the chances are equally as slim when it comes to trading. There’s no shortcut to wealth.
We’ve mentioned the importance of knowledge, now let’s talk about money. It’s equally important to distribute your capital properly as it is to have a good investing strategy. What we mean is, don’t invest all of your money in one place. You may have done meticulous research and it might seem like a sure win, nevertheless, never go all-in. If you end up being wrong after that kind of investment, you’re finished. The money is gone and you have nothing else left to deal with. If you use a portion of your capital, you can afford to lose. You are going to lose, be sure of that. No one has a perfect win rate. The trick is to win more than you lose and you can’t do that if you go all-in.
4. Not learning as you go
Like we’ve said, a good way to learn is to find someone who’s in the business so you can learn from them. The problem arises when you try and replicate everything they do. Don’t follow your mentor blindly, learn from their actions and take some of your own. If you don’t do that, you’re never going to grow or make progress.
5. Averaging down
We’re aware of how this might seem like a good thing to do, but the logic of this is deeply flawed. If the stock loses its value, it’s not an invitation to buy more just because it’s cheaper than it was, that just means you’re going to end up losing more money. Accept the defeat and move on.
6. Breaking even
This is a strategy that made a lot of gamblers lose everything because that’s just what it is – a gambler’s move. If you’ve encountered a bad day and you’ve lost some money, that’s fine. Accept the fact that you’ve lost and move on. The worst thing you can do is try and recover a loss by trading more. You’re never thinking straight in those moments and your strategy is based on impulse. That’s a recipe for disaster. Learn to accept the fact that some days you win and some days you lose.
Day trading is definitely something that can turn your life around, however, that also means it can go in both directions. There’s no such thing as no-risk high-reward. So, make sure you avoid these mistakes, take it slow and you should be more than good.