Day trading has its ups and downs especially as a beginner, day trading can be very rewarding if carefully planned and well-executed. However, many times, day-trading beginners fall victim to simple mistakes and ending up making unnecessary losses and to a great extent quitting stocks trading.
While day trading comes with certain level unpredictability, here are some of the rookie mistakes you can avoid as day trading beginner.
Lack of adequate knowledge and practice: As a beginner, it can be very easy to fall victim to this mistake when you venture into actual stocks trading without investing enough time and effort to expand your knowledge and skills about day trading, how it works and how to make the best of it.
There are a number of material resources you can explore as a beginner to avoid this mistake. You can start by reading books, watching videos tutorials, and listening to other stocks related webinars about trading.
Watching video tutorials and reading books alone does not shield you from making other mistakes. The next best step after acquiring the knowledge is to practice. As a beginner, you are advised to practice extensively with simulated trading accounts to develop and solidify your trading skills and expertise before staking any real money in day trading.
Panic Buying: This is the second most common mistake day trading beginners make. Momentum trading can be very profitable for traders who are able to identify and trade in hot stocks when the prices are still high and stable. Beginners find themselves fixated in trading stocks that have had the biggest runs
However, as beginner, you may find yourself panic buying these hot stocks hoping to make significant returns only for the momentum stocks to stalk and fall take along all your money with it. This is a mistake you need to be on the lookout for and easily avoid.
Overconfidence: The other mistake and a big risk is the issue of making too big and overconfident bets too soon as a day trader. If you find your self-making too big and overconfident bets too soon, you will most certainly lose most or even all of your money.
Being a beginner with limited experience, steer clear of making fast outsized stock trading bets. The rule of thumbs in day trading has always been; “ do not risk more than you can afford to lose.” Making big oversized stock trading bets makes you a gambler rather than a trader. As a day trader, keep it small and consistent, 100 shares or less and you will be fine and comfortable.
Using too many technical indicators: Please note, indicators cannot lead you to that Holy Grail you are hoping for. The next common mistake rookie day traders make is that they start with the conviction that the more the indicators they use, the better their prospects.
That belief is not true. Using too many indicators only makes the process confusing and distracting and maybe a limitation because you cannot focus on the aspects of day trading that count and that is always the market as it is.
On the contrary as a day trader, your focus should always be on the market trends and remember, the fewer indicators you use, the better. You can choose one or two indicators that you have been experimented with and have proven to work best for you. A good example can be the volume-weighted average price (VWAP) or the New York Stock Exchange Tick.
Overtrading: Another common mistake day trading beginners make; they buy dozens of stocks as long as the stocks are moving up with anticipation that they will make a quick profit.
You do this as a beginner and you are up for a financial disaster.
Instead of hoping to make quick bucks, just opt to trade in one or two stocks every day and keep doing that consistently; that is what professional traders do. Trade less but more accurately.
Selling your winners too soon or Too late: Part of a successful day trading routine involves managing your winning positions and this can sometimes be complex and challenging to a beginner. You may find yourself feeling too impatient and selling your winners too early and hence missing out on potentially larger profits.
The opposite is even worse; you hold onto your winners for far too long hoping to make an even larger profit until the profitable position plunges to zero. To avoid this mistake, always plan out in advance and set out your limits for when to sell and stick to that plan.
Holding losers too long: As a trader, knowing when to let go of losers is a tricky affair. It takes skill, knowledge, and experience acquired over time to be able to navigate your way through day trading. You sell too quickly, you miss out on profits, on the other hand, you sell too late, and you make significant losses.
A common mistake beginners make is that they often hold on to losers for too long with the hope that there will be the next turn around but often, this leads to big losses by the time you decide to let go.
A point to always remember; once you notice that the loser is not likely to make a turnaround before the markets close just sell and wait to trade the following day. You are trading, not investing and so, must always be on the lookout not to hold losers too long.
In conclusion, day trading is complex but also very simple if you take your time and know your craft. Before playing at least take out enough time to learn how to up your odds by looking out and avoiding these common mistakes.