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Common Day Trading Mistakes

Common Day Trading Mistakes
February 01
08:06 2011

Since learning from other’s mistakes can be much less painful than making your own, let’s take a look at 10 most common mistakes made while day trading.

Day Trading Mistake #1: Being undercapitalized.

One of the most common mistakes made by someone day trading, is being afraid to actually pull the trigger when they get a trade signal. Quite often, day traders will combat this by starting out with just a small amount of money. However, day traders need to make sure that they have enough capital to experience the chance to win and lose in various trades. Losing is a valuable lesson to the day trader, but only if they make sure that they learn from each mistake. Not having enough capital in your trading account will rob you of this chance.

Day Trading Mistake #2: Learning as you go.

If the trader thinks that they can just “pick up” day trading off the cuff as they start trading online, they are probably going to lose most if not all of their money. Before you start trading with a live account, you should be fully prepared to handle the various highs and lows that trading will bring. Do your homework and know the risk and rewards that are possible in trading and you have made your first step to come out on top.

Day Trading Mistake #3: Trading is a hobby.

Day trading cannot be treated as a hobby. Day trading is serious business. It should be treated as such, as it really is a small business. It will require a trading plan, research, as well as projected goals and returns.

Day Trading Mistake #4: Being Overconfident.

The day trader may find that they have made money on a couple consecutive trades. However, this does not make them a day trading expert. The markets are wild and volatile, and as such day traders need to be on their toes. As soon as a day trader thinks that they have the markets figured out, the markets will often prove them wrong. The best thing to do is to always respect the power of the market, and stick to your trading plan.

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Day Trading Mistake #5: No Trading Plan.

No business should ever operate without a business plan. Most people would agree with this, yet many day traders will operate without a trading plan. Even though this seems to be common sense, this is a common issue.

Day Trading Mistake #6: Not Following Your Plans.

One of the most common and destructive mistakes a day trader makes is to simply not follow their plans. Temptation, an “obvious signal”, and just simple greed can lead traders down the road of being undisciplined. This is without a doubt one of the most dangerous mistakes, as traders will often lose more than they originally planned as they raised their amount risked.

Day Trading Mistake #7: Trader’s Ego.

Your ego can be your most dangerous adversary. A professional knows that they are not always going to be correct on every trade. A good day trader will not go into trading thinking they have anything to prove to anyone.

Day Trading Mistake #8: Bad Accounting and Risk Management.

Day traders simply cannot overtrade. The trader should stick to the lot size that they are comfortable with. A day trader’s ultimate goal is to stick to their parameters.

Day Trading Mistake #9: Get Rich Quick Mentality.

A professional day trader will set realistic and attainable goals for themselves. If a day trader tries to make $1 million over the course of a single night or day, they risk losing more than the professional one because of their unrealistic goal. The goal should be to become a well disciplined and good day trader. If you can do this, the money will follow.

Day Trading Mistake #10: Never Looking At Yourself.

Day trading doesn’t mean that you need to punish yourself over the trades and trading decisions that you make. However, you should take the time to see why you chose the setups and the decisions that you made during the day. Try to find out what made you follow your plan, or even more importantly, not to follow your plan.

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One of the most common and destructive mistakes a day trader makes is to simply not follow their plans. Temptation, an “obvious signal”, and just simple greed can lead traders down the road of being undisciplined. This is without a doubt one of the most dangerous mistakes, as traders will often lose more than they originally planned as they raised their amount risked.

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