© Reuters. 5 Mistakes To Avoid While Day Trading
Day trading is often viewed as risky and challenging, and it is. Intraday trading is not only about making calculated trades, or booking profits; it’s about risk-management, knowing when or when not to make a trade.
Despite intense focus, and risk mitigation, most traders will make mistakes that lead to significant losses. Here are five common mistakes day-traders make, and how a new investor can avoid them:
Trading without a plan:
Take the time to educate yourself on trading strategy and market patterns, use that information to develop a plan. When a plan is adhered to, emotions are less likely to take over and lead you astray in the heat of a trade.
Risking too much in a single trade:
Risking more than you can afford to lose can blow up a brokerage account, leaving an investor to either add funds, or close the account. How much capital you risk depends on your account size. As a general rule, don’t risk more than 1% of an account on a trade. In other words, don’t lose more than 1% of your trading account on a single trade.
Chasing a trade:
Stocks with high momentum tend to be more volatile than the broader market and typically end up stalling, and then being sold off. Day traders are focused on fixed, and reliable returns. When an investor finds themselves chasing a trade, the stock has likely already made the move that the investor is chasing.
Also Read: 5 Books For Learning How To Trade Options
Setting up Stop Loss:
A stop-loss is a tool designed mainly for traders to save themselves from significant losses. Many day traders use a stop-loss because it gives them an idea of the amount of funds being risked when it comes to losses. A stop-loss order is a type of order by which the trader instructs the broker to sell the stock as soon as possible when the market falls below a predetermined price during the trading day.
Allowing a winning trade to become a losing trade can happen swiftly, vaporizing unrealized gains. Day traders enter each trade with a price target, reducing confusion and risk. As a rule of thumb, take most of your profits when they reach 20% to 25% on the trade. If market conditions are choppy and decent gains are hard to come by, then you could exit the entire position.
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5 Mistakes To Avoid While Day Trading
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