Major risks of day trading
Examples of day traing rules
to correct day trading mistakes
There are risks of day trading that every day trader should know. And also every day trader should know how to handle them and how to avoid day trading mistakes.Well it not probably not possible to trade without mistakes. Even best traders do some day trading mistakes. We are only humans, not robots. But what is needed and what select best traders from losing traders is that these best traders in the world can recognize their mistakes. And then they learn what is wrong and how to correct these day trading mistakes. They prepare new day trading rules to avoid these mistakes in future.
What are typical day trading mistakes ?
There are several different day trading mistakes. All of them represent different risks of day trading. There is very important to recognize them and then prepare day trading rules how to avoid them.
Trading without plan - emotional trading
There are plenty of traders who do not have any trading plan. They often look for some hot day trading stock pick on Internet. They often react to spam email that contains guaranteed hot stock pick for big profits. Most of these "traders" open the trade without proper plan where to place
stop loss,
where is their
target
and if their trade has good
risk reward
ratio. They have not tested stock trading strategy for day trading stocks and so they sooner or later lose their money to better prepared traders.
Overtrading
and day trading rule for correction
Very common day trading mistake is doing too many trades during trading day. This situation happens often after several losing trades. Day trader wants to take money back and starts to trade heavily.What is correct day trading rule ? One of major day trading rules that should be in good day trading strategy is to stop trading when trader realizes several losses in row. Something like "three losses and stop trading for a day". When three losses happen that it is clear that day trader is not in sync with market and it is better to stop trading and wait for another day. Another problem happens when trading day does not offer good trading opportunities but day trader wants to make some trade and make some money. It is much better to stay away of such market. It is fine to be in cash for a day and concentrate energy for days when trading conditions offer better profitable opportunities.
Too big risk on single trade
Main day trading rule in stock trading is to define maximum risk for single trade. This is also one of common day trading mistakes. Trader wants to make huge amount of money, he/she is convinced with his/her setup and believes that this stock is the right stock for huge gain. And so he breaks his day trading rules for
money management
and opens bigger position then he should open. Such trade can be profitable sometimes but in most cases it will end as losing trade with
above average loss
- loss that should be avoided!
Trading with very small accounts
It is common that a lot of beginners want to do daytrading with small accounts. There is very big truth in saying that "size matters in trading".There is minimum limit for daytrading account to day trade US stock exchanges. This limit is 25000 USD. But I recommend to start with little bit higher account like 30000 USD. Best size is 50000 USD or larger. Please do not try to daytrade with smaller accounts. Some brokers offer special CFD contract that offer high leverage and can be traded also on smaller accounts. But it is not good. I recommend to use
virtual stock trading
and
paper trade
before live trading. Then open account with adequate size and start daytrading. Even size of your trades will not use all trading power on your account it will be much better situation for your emotions and psychology of trading.
Your new day trading rules
Can you say that you have solved all risks of day trading ? Do you have day trading rules to avoid these day trading mistakes ? If not, think more about them and try to prepare your new day trading rules in your stock trading plan to avoid them.
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