Day Trading Mistakes

Day trading can be a profitable business, but it needs to be run like one. This means that your trading will have rules that help maximize your potential for profitability. The difference between a profitable and a non-profitable trader is often their ability to follow the rules. You must have regulations and follow them religiously. Another critical aspect of trading is knowing what not to do to help build the foundation of your trading business. These are the top 10 mistakes to avoid so you can generate a profitable trading strategy.

Top 10 Mistakes

  1. Not Having A Proper Tading Plan.
    1. The first thing that needs to be established is a proper game plan. You effectively lower your edge as a trader when you do not have a trading plan. An appropriate trading plan includes a defined risk that fits your risk tolerance, an ideal entry, a stop loss, and a take profit. It is also essential to understand why you are taking a specific trade and what would have to happen to invalidate your thesis. A stop loss or take profit can be either a level, a percentage gain/loss, or a dollar amount.
  2. Not Trading your Trading Plan
    1. It is far too common to see a trader put a lot of effort into developing a proper trading plan to dishonor the plan minutes later. Some of the detouring from the plan occurs before even taking the trade. Many traders get fear of missing out, or FOMO, and end up entering trades away from their ideal entry. Once in the trade, it is easy for emotions to get in the way, causing a trader to disobey their stop, take profits, and overall trade plan. It would be best if you made the best trade plan possible and traded it to the ‘T”. 
  3. Not Having Risk Management
    1. When first getting started, many traders have their risk management all over the place. It can be challenging to understand your risk management as a beginner trader because there is a chance that your portfolio may need a different size than it would be to achieve the desired gains. Traders often think of size in regard to how much they can make rather than how much they can lose. When you calculate your risk, the amount you can lose should precede how much you can make. 
  4. Not Following Risk management
    1. Once a trader has developed a proper risk management plan per their trading account, it can quickly get thrown out the window. One way that this rule is broken is when you average down your position size. If your max position size is already in a trade, and you’re refusing to accept a loss, a beginner trader may try to “buy” their way out of a trade by 
  5. Hopium
    1. “Hopium” is a trading term that embodies a problem found in many traders during a losing trade. When you are wrong in a trade, you start to build hope that it comes back to work in your favor. This “hopium” can cause you to become delirious while staring at a chart with no plan, just hope. This does not work. Hoping is not a strategy.
  6. Greed
    1. Greed is one of the biggest profit killers in the game. This occurs more often than you would think along the journey of being a profitable trader. When you are in a position with a take profit approaching, it can be hard to accept that you need to get out of the trade. Even if it has followed your plan to this point, being in a winning trade can be hard to exit as you imagine what gains you could be missing out on. To make matters worse, when you make a profit, it likely will keep going. It is unrealistic to expect yourself to buy the bottom and sell the top, but that is the fantasy that everyone has in their mind when trading. The reality is that you will hold onto the winning trade, letting it turn into a loser more times than you will sell at the maximum profit possible in a trade. This is why it is so important to let the fantasy of being perfect go; your job is to execute your plan flawlessly. 
  7. Not Understanding The Market Environment or News.
    1. As a beginner trader, there is already so much to keep up with and follow daily. It is easy to forget about things outside of your charts. Gaining knowledge in understanding market news will grow as you gain experience in trading, but a mistake beginner traders make is not even trying to understand the news or ignoring it. Information can range from a single name to a sector or even the entire market. Using news sources to keep up with that may alter the path of the market should be on every trader’s premarket routine. 
  8. Lack of Emotional Control
    1. Lack of emotional control can come in many aspects. This topic can easily be broken down into other subsections, like in this article. Revenge trading, greed, and “hopium” is all emotion. Generally speaking, emotions can be the root of all evil in trading. It is so easy to go on tilt and act outside of yourself. Many successful traders say that profitable trading can become almost “boring” due to how controlled their emotions are compared to beginning traders. You need to ask yourself what emotions you feel and why you think you have them. Are these emotions helping or hurting my trading? Be in control of your emotions. 
  9. Not Being In Sync With Your Mental / Headspace.
    1. Being a master of trading is to be a master of your mind and emotions. Only some days are you in the right mindset or headspace to trade, which is okay. Traders often need to pay more attention to what is going on internally and need help understanding its effect on their trading. As a trader, missing a day or multiple if needed is okay. The market will be there when you are ready to get back. Real-life situations happen and can alter the way you process information. Being in a bad headspace can cause traders to go on tilt easier than usual and lose control of their emotions. A check on the mental headspace is critical before every trading session. 
  10. Revenge Trading
    1. Another common downfall of trading is known as revenge trading. Even professional traders have the urge to revenge trade, but the ability to recognize and control what you do at that moment is critical. Revenge trading happens when the emotion of your last loss creeps in, making you desire to take a suboptimal trade to get that loss back. Your ego in trading tends to get in the way, and your want to find a winning trade overshadows finding a good trade. One way to help overcome this problem is always to accept your losses. Accepting a loss is easier when you follow your plan accordingly, paired with proper sizing that fits your accurate risk profile. 

In Conclusion

Trading is all about developing an adequately run business plan. Once that plan has been created, you must follow it accordingly. Deviating from the goal set for yourself can be detrimental to your success. The urge to break the rules may never go away, but a successful trader limits the number of times the desire becomes stronger than their will to be great. By recognizing your limitations you can greatly reduce trading mistakes and prolong your trading career.

Happy Trading,