A large majority of intraday traders stop active trading after one year. Intraday trading is often time consuming, needs a lot of research and patience. Not all days end in green in day trading and people often wonder why day trading does not work.
But the truth is day trading has been profitable for many people for those who follow the rules. You too can become successful in day trading by avoiding the common mistakes in stock trading which have been listed below.
1. Failing to put a stoploss order on your trades
2. Not being patient enough for the target to reach – exiting before target
3. Being too emotional or depressed and developing a negative attitude
4. Being overconfident and greedy and trading beyond your limits
5. Trading in illiquid stocks and being forced to take delivery of stock
6. Trading on rumours or news can be harmful if done without planning
7. Not setting a proper trading strategy for intraday trading
8. Changing a strategy too often and not waiting for proper results
9. Not being technologically adept in times of the digital revolution
10. Following herd mentality is never a good idea
One of the most common mistake due to which you can lose money in stock markets is not placing a stop loss on their trades. A stop loss order is an order where you instruct your broker to sell a purchased security when the prices start going down instead of up. This helps you in limiting the loss. Most traders commit the mistake of not placing a stop loss order hoping that the price would reverse and move in the desired direction. Not just beginners, but even seasoned traders make this mistake of not closing their position in time with limited loss and instead end up incurring a huge loss.
It might have happened with you that you have been given a target of a higher level, which can help you earn a profit in the trade. However, in hurry book profit, you closed your position even before the target price was achieved, thus, closing your position at partial target. This happened due to lack of patience. Despite getting all the signals that the full target will be achieved, traders close their position in advanced, thus leading to a smaller profit.
This cuts down on your ability to earn full profit from the markets. You should always take help from a certified investment advisor and flow the advise both in terms of waiting for the target as well as placing the stop loss.
Being too attached to the profits and losses and getting depressed in case of a loss are the signs of a poor intraday trader. You must always keep your emotions in check while trading in the intraday trading markets and should not let losses get in your way of avoiding trading altogether.
Stopping from trading altogether, reduces your chances of making up for the losses you incurred and leads to developing a negative attitude towards the stock markets and trading in general. You must always treat profit and loss in the same spirit and try to succeed by following the rules of intraday trading.
While traders who face losses tend to feel depressed and sad about the loss, those who place a few successful trades tend to feel over confident about their trading and make rash decisions which are often likely to affect their trading decisions. A winning streak does not guarantee that you will not face losses in the future. A few back to back profitable trades can make you greedy and encourage you to place trades which are not necessary. It is important to avoid that and set limits for yourself.
Trading in illiquid stocks is a mistake which amateur traders make. It is an outcome of lack of research in trade. It is important to understand that volume of a stock or its liquidity plays a very important role in intraday trading. Imagine a situation where you are buying a particular stock in the morning, hoping to sell it before market closing at a profit, but you end up finding no buyers for the stock purchased. This might lead to your sell order not getting executed and the stock being delivered to you in your demat account. A problem like this is caused when trading is done in illiquid stocks. It is important to always place trade in companies which have a lot of liquidity in their market shares.
Trading on the basis of news is one of the most dangerous and risky types of trades, as the stock markets are highly volatile and it can be impossible to predict how markets react to a particular news or rumour. There can be a sudden volatility which can erode your invested capital if you do not have a well thought of plan and have not analysed the clear impact of a news or rumour on the stock prices and have traded in it. You must always assess and analyze as to how a particular news will affect the markets and only after that you should place your trade, once the volatility dies down.
Many traders in the intraday trading markets lose because they do not have a proper trading strategy in place and they trade on the basis of their gut feeling or rumours. This can be just as harmful as driving a car with blindfolds on a mountain. You should always have a strategy for intraday trading and you should stick to the strategy. A strategy needs to be based on proper study of the markets and should be a proven method. Technical analysis offers many such trading strategies which can make day trading a more scientific exercise than just magic. Hence, not having a strategy is a mistake you can avoid.
Once you have chosen a strategy, it is important to stick to it for a considerable time, instead of rejecting it at the first loss. Changing strategies too often is also a mistake in intraday trading, since each strategy requires practice and patience too. It would not be wise to keep changing the goal post every time during the game. No trading strategy can guarantee 100% success because markets are unpredictable. Hence, it is important to have faith on your trading plan.
Today technology has become very important in the field of stock market trading and with the wide use of high frequency trading, it has become all the more important to have a connection to the markets and even faster communications platform to execute the trades in time. If you do not evolve with the changing times is most likely that you will lose out on quality trades and get dejected. Hence, you should always be up to date in terms of the latest technology and have a high speed internet to execute the trades in time.
Be it in intraday trading or in your lives, just blindly following the masses is never a good idea. It is a fatal mistake which can lead to losses for a trader. Each person has unique expectations from the market and different risk appetites. Hence, copying another trade and replicating his trades is not a wise decision. Many traders commit this mistake and copy the trading moves of seasoned traders such as Rakesh Jhunjhunwala or Warren Buffett hoping to become traders like these, but they do not understand that there is a huge difference between these bigwigs and themselves. You have unique trading requirements and no two person’s trading strategies can be same.
If you can determinedly avoid these mistakes in the stock markets, there are chances that you can earn profits and become successful at it. The helping hand of a certified investment advisor too can help you to become a disciplined trader and trade without emotional interference
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