BEGINNER'S DAY TRADING MISTAKES
© 1999 by cOUSIN SHORTY.com, may not be reproduced
without permission
Day trading is not for everyone. In fact, it's not for most people.
You can get hurt badly, very quickly. Everyone is different,
everyone has a different trading style. Some people can see good
short opportunities. Some can see good longs. There are only a
few ways to make money, there are a lot of ways to lose it. I'll let
somebody else get into how to make the money. Before you do
that, you have to learn how not to lose it, because if you lose it,
you are gone.
Here are a few things that a BEGINNER can do wrong:
1. Mistake: start trading before you have practiced. I would be
very familiar with the setup and I would trade on a simulator for
at least 2 weeks, a month would be better. If you are trying to
make a living at it, and are trying to day trade instead of some
other way of making money, you will probably fail. Have another
source of income. Take enough time to completely understand the
trading system you are using, because you don't want to learn it
when you are long a stock that is going down one point every 10
seconds.
2. Mistake: start trading by trading 1000 shares. I guarantee this is
suicide. Start by trading 100 shares or 200 shares. The first time
you short some stock 1000 shares and it spikes up for 3 or 4
points and you can't get your buy cover off, you will learn this the
hard way. The easy way is to trade 100-200 shares until you get
good. Good means 5 winning days in a row in real life.
3. Mistake: trade light volume stocks. If you do this, you will get
hurt, I promise. Trade stocks that have a daily volume of a million
shares or more until you are consistently successful.
4. Mistake: trade a stock that has more than an eighth spread.
Don't do it. If you are on the wrong side on a trade with a quarter
spread, you will be down a half in a heartbeat. Hollywood Global
Internet Potato is up 14 points in 2 minutes? It's 65 x 66 1/8? Why
not just have Mike Tyson bite your ear, it's less painful.
5. Mistake: watching a losing trade get worse. Decide what your
limit for the loss is and get out if you see that limit. Decide
BEFORE you make the trade. A reasonable limit would be around
3/8 - 1/2 on a short term trade for a beginner. If the trades goes
3/8 against you, get out. If it turns around and goes your way, after
that, that's OK. You made the right call at the wrong time. Work
on your entry point, and try to do the next trade at the right time.
6. Mistake: exiting a winning trade at the wrong time. You want to
sell into strength and buy into weakness when you exit. If you
have a long position and the stock runs fast, it's easy to wait till it
stops and reverses. Your winning trade will turn into a losing
trade and you will not be happy. Conversely, exiting a winning
trade too soon is annoying. But not nearly as annoying as losing
money. While you are learning, learn to take a profit. You can fine
tune Profit Taking later on.
7. Mistake: averaging up/down. Once you learn the game, you can
do this, but not when you start. If you made a bad call, get out of
the trade. Just get out of the trade and move on.
8. Mistake: trying to trade like someone else. The person you
learn from is successful. So, you need to mimic that, right? Yes
and no. Everyone is different. The person who is teaching you
AVOIDS MISTAKES, but they are not your mistakes because you
are two different people. If you are being taught by someone who
is not trading right now, you are being taught by the wrong person.
Learn from someone that is doing it, not someone that is teaching
it. If you are learning from someone that just had three losing
trades in a row, get off the bus, you are on the wrong bus.
9. Mistake: holding something that went against you "till
tomorrow". You will probably do this and learn the hard way. In
the beginning, just get out of your bad trades. One day will turn
into two weeks and your buying power will be gone and if you
are very lucky, the stock will come back to where you originally
had it and you will get out for no gain. After you get out, it will go
your way, but not before.
10. Mistake: holding a winner overnight. Don't do it when you
start. It's a bad habit. Don't do it.
11. Mistake: trying to make up for a bad trade with another trade
on the same stock. Doubling your position on the second trade to
make the money back you just lost. This is gambling. Let the trade
come to you. You screwed up, so clear your head and let the next
trade come to you. Let your strategy fit the trade, don't try and
massage the trade to fit the strategy.
12. Mistake: chasing a short down. This is a really good way to
get char-broiled. Sometimes it works. Most of the time it doesn't.
If you wanted to short the stock at 40 and it goes to 39, you missed
it. Let it go, Luke. You are not a Jedi yet. After you have been
trading, you might be able to do this, but not when you start.
13. Mistake: chasing a long entry up. Same thing. You wanted to
go long at 40 and the stock is at 41. You missed it. Don't chase it.
Chase a girl instead. Especially don't chase it if the volume picks
up, because you are late for the show, and the easy money is
selling it to you, Zippy. That's why they reverse before you get
your confirmation.
14. Mistake: trying to find a trade after you just made 3 losing
trades. If you just made three losing trades in a row, you need to
take a walk and relax. Maybe you need to stop until tomorrow. 3
losers in a row = stop. Figure out what is wrong and either
correct it or stop for the day.
15. Mistake: being in two trades and looking for a third. If you
start day trading and can watch 2 winning trades and look for a
third, you will be a millionaire soon, but I doubt that you can.
Why not just watch one trade at a time. ONE TRADE or two at
the most at the same time when you start.
16. Mistake: not asking for help if you run into trouble. You
bought a stock and then you bought twice as much instead of
selling your original position? It happens. You are long, and the
machine says you can't sell because there is no downtick? It
happens. Don't sit there like a deer in the headlights, scream!
Someone will hear you. Don't let a mistake take your money away
while you sit and watch like a zombie. It's OK to be wrong if you
have to pay more to be right.
17. Mistake: getting emotional because you lost money/exited at
the wrong spot/missed a trade/etc. This is the best way to lose
every penny you have. If you get emotional, you will get nuts, and
if you get nuts, you will get scared, and when you are scared you
will lose money every time. The people with more money than
you count on this one single factor to make money short term. That
is their secret. Don't tell anyone I told you. |
