Things to avoid when day trading. I’m sure there are plenty of other things as well that can cause you to lose and fail at day trading as well. These, however, are not so uncommon, especially among people who wish to become profitable day traders.
1. Moving your stop loss
First, and I think one of the most important things on the list is moving your stop loss. Do not move your stop loss, at least not in the direction that will cause you to take a bigger loss. By moving your stop loss further away, you will maximize your losses.
Even if the trade happens to turn around and be profitable, if your risk to reward at first was 1:1, you could, after moving the stop loss, win a trade that was risk to reward 2:1. On the long run, these trades might not be profitable, unless you have a high success rate. Do not move your stop loss in the direction that it will cause you to lose more than you planned when you entered the trade.
If the trade you are in is looking good, and going in your desired direction, in some cases you can move your stop loss to a break-even point. This is because if the trade suddenly turns against you, you will still lose nothing. This is not always a good thing to do however, if the trend is in your favor, you maybe wouldn’t want to get out of the trade even if it looked bad for a while.
2. Revenge trading
Second on the list is revenge trading. By revenge trading I mean forcing yourself to take trades because you have a few losses already at hand. This mentality of “I must win the money I lost back” can be fatal to your trading account. It can cause you to force yourself to take bad trades, just to cover the losses you already took.
If you happen to have a few losses in a row and you feel like you must win the money back, take a break. The break can be an hour or the rest of the day off. Remember that losses are part of trading, and you should be aiming to win in the long run. If you start disobeying your trading strategy because of a few inevitable losses, you might put your trading career at risk.
You could set yourself a daily limit; for example, if you happen to have three losing trades in a row, call it a day. Or have a limit, if you happen to lose 200 dollars in a day, maybe try again the next day.
3. Impatience and over trading
When trading, especially with longer than one-minute timeframes, it can take hours before a good opportunity shows itself. You must be patient when trading. If you get impatient and start taking trades that don’t fill all your criteria, it might cause you to take useless losses.
It takes discipline to stay in your trading strategy, even if you didn’t get any entries for the whole day. At least you sticked to your trading plan and didn’t end your day at a loss you took for not sticking to your plan. Obey the rules you have set for your trading strategy.
4. It can’t go any lower
The mentality that it can’t go any lower, can represent itself when taking a trade, or when already being in the trade. I can tell you; it can go lower. If you enter a long position just with “it can’t go any lower”, and disobey your trading strategy, this again can be a useless loss on your record. Even if it happens to be a win, you can’t include that to the profits/losses of your trading strategy, since you didn’t obey the strategies entry rules on that trade.
This can also be done with your stop loss, which we discussed below. If the stock is not moving in your desired direction, and you feel the “it can’t go any lower, I will move my stop loss”. Don’t do that. Stick to your plan because most of the times it can go lower. Same applies in short positions with “it can’t go any higher”.
5. Copying others
Have your own strategy and stick with it. Do not try to mimic others on their trades. They probably have their own set of rules that they follow, and it might be hard for you to understand every trade and why they took it. Do your own strategy and stick with it. This way you will get the most reliable results of the strategy and how it works.
6. Avoiding losses
Losses are part of trading. There is no strategy that will have a 100% success rate. At least I have not heard of one. Let me know if you find a strategy that doesn’t include any losses. The trick is to play with a good risk-to-reward ratio, this can even be 1:1, but then you should try to get your success rate to over 50% to be profitable.
With 1:2 risk to reward you only have to win 33% of the trades to break even. Losses are part of the game; do not move your stop loss when trying to avoid them. Learn from your losses.
I think everyone who has ever tried day trading, can admit they have committed one or more of these things. Mistakes are part of the learning process. Learn from them, and do not repeat the same mistakes over and over again. Hopefully this can help you on your journey of day trading. I have other day trading related posts as well. You can read them here. Have a nice day.
This is not investment or financial advice. Always do your research before risking your hard-earned money. Keep in mind that some estimates say that even 95% of day traders lose money.