The world of stock trading can be equally exciting and terrifying for most first-time day traders. While a majority of individuals are lured in by the prospect of making massive sums of money via stock market trading, it is this excessive adrenaline that can cause them to rush things and make irrational decisions. Despite the fact that stock trading might seem a lot like the lottery business, it is, on the contrary, an art that requires considerable knowledge and discipline, a lack of which might drive you into making dreadful mistakes in the business. Here are a few common mistakes that most day traders make and ways in which you can avoid them.
Taking an unprepared plunge
While you might think that it is all about ‘luck’ in the stock market, you should never be solely dependent on it. You need to take your time, do your research and actually get to know the markets before you take the huge plunge. It is absolutely imperative to educate yourself about the inner workings of the market, the kind of setup you would like to participate in and the strategies that you will employ in the business to truly master day trading.
Breaking the stop loss rules
More often than not, the amateur traders tend to panic in the event of a sudden drop in their stock and decide to hold it, instead of exiting when their initial stop loss has been reached. As a result, they end up losing a lot of money in the process. It is, therefore, advisable to keep a tab on your emotions and rationally follow the rules that have been designed with your interests in mind.
Not expecting the unexpected
Let’s face it. The stock market has a way of throwing both pleasant and unpleasant surprises at those involved with it. Not anticipating losses, wild swings or inexplicable dips will only end up making the battle all the more difficult. You must understand that both profits and losses are a part and parcel of the game and must be accepted as such.
Lack of focus
Most first-time day traders end up making the grave mistake of trying to get engaged with too many different instruments at the same time. Not only do they lack the focus of choosing the right option between futures, options or stocks but also do not have a working business plan suitable for them. Having too many items on your plate makes you unable to properly monitor the progress of each of them and might also cause you to lose a lot of money in the long run.