Day trading is believed to be something very easy for a lot of people, with this belief in mind, many of them tend to lose money heavily. Losing money for which you have worked so hard to earn is not a good feeling. For this reason I’m going to share some of the common mistakes day traders make and cause them to lose at the end of the day.
Enter When a Stock is Moving Fast
Some day traders buy a stock when they see that it’s plummeting. They buy such stock thinking that the price will shoot back up for the day, but there are other aspects they should know of before thinking as such.
There’s no guarantee that the price will go back up unless you have found a reason to support your opinion, which is still not a guaranteed. There are many reasons which can cause a stock to decrease in price, if you don’t know why the price has dropped so low it’s best not to buy.
Others like to buy shares when they spot a stock that’s currently increasing in price. Without having done any due diligence, they acquire some positions and then watch the price goes down with their money already been invested in this company.
Buying Stocks When They Hit Their 52-Week Low
This, too is another mistake that is being committed everyday by some day traders. Sometimes a company may hit rock bottom due to financial crisis. If you wait when a company drops to its 52-WK low to buy shares then you are setting yourself up for failure.
Don’t get me wrong, I’m not saying traders cannot make money this way, I would be lying to you. But choosing to trade like this is not always good as so many day traders think.
Not Having a Plan
Being a day trader without a plan is a recipe for failure, period. How could you be in such dangerous market and not having a plan to at least help you if thing goes wrong?
“The most common mistake traders make is entering a trade without a good plan,” states Toni Turner who is the author of ” A Beginner’s Guide to Day Trading Online.” He even goes further and says “Nearly every mistake can usually be traced to trading without a plan.”
Planning before buying stocks, especially penny stocks is the best approach to ensure that the day goes well for you. Allow me to give you some tips on how to plan before you buy: Oftentimes when we own a stock and the price is increasing we usually feel like we have to hold it because there’s a potential that we can make so much more.
Sometimes, this mentality cost us some of the profit or even more than the profit. Planning is to have a fix set enter and exit price, as well as where you want to stop your loss. If you have an exit plan you would not worry about losing your profit since your shares would be sold once it hits the sell mark.
If you were to lose for that day, the stop loss would give you control over how much money you will lose. Planning before trading is very important if you really want to make money day trading.
Trading Right After The Market Opens
Some of the trading gurus say the first 15 to 20 minutes of the market are very chaotic. The reason being is due to very large number of orders that are coming from everywhere, including the financial institutional and high-frequency traders. Kurisko, owner of a day trading radio says:
The first and last 15 minutes are too volatile for new traders, It’s like the Wild West, and sometimes there is no rhyme or reason to it. Also, the indicators don’t have enough data, so they get choppy.”
Trading Using Margin
Margin is a good tool available to traders to use. It gives traders the opportunity to borrow from a broker to buy securities. Many trading has been using margin successfully, but it has to be used the right way in order to be beneficial. Using margin incorrectly can wiped out a portfolio.
Some traders borrow more than they can afford thinking that they will cover the cost after they sell. This is a very common mistake; unfortunately, they usually lose all their money. If you want to use margin, take your time and learn all the details first before you proceed.