Day trading involves buying and selling of financial instruments within the same trading day.
Day trading, also known as intraday trading, is one of the most used strategies by traders nowadays. Earlier it used to be exclusive to professional spectators and financial firms.
But now it’s a full-time job that people and especially youth are getting into. But they must remember that before getting into day trading, they need to have the fundamental knowledge for the same. One needs to understand the dos and don’ts in the market.
New traders in the market need to be aware of how to be independent in intraday trading
and not follow some other trader blindly.
The advice and the live trading that we see online, should be used by one for educational purposes only. As rightly said by Warren Buffett, “Learn the language.”. What he meant is that do understand the subject before placing your bets on it.
Here are the 6 key mistakes which need to be avoided while doing intraday trading.
1. Not using technical analysis
What do you do when you want to pass a test with flying colours? You do the best preparation possible. The same is how you should treat day trading as well.
In day trading, we cannot start trading without any knowledge of the stock and start placing our bets. That’ll lead to us losing a considerable lot of money in no time.
You should technically analyse the stock’s past performance and decide according to it. This will help you hold a strong position and save you from a whole lot of panic situations. A trader who enters the stock market without any analysis often faces a situation of panic and anxiety as they face their stocks going downhill.
The use of the right technical indicators will help traders to make the right decisions. While it may not guarantee huge profits but will be the safest bet that they’ll get.
2. Following tips
Every day on youtube, there are thousands of videos being uploaded on which stocks to buy and which to sell.
There are even live channels where they do live day trading. Most beginners simply start watching these youtube videos and start imitating them.
These videos should be used for educational purposes so that you understand and learn from the opportunities and mistakes the other trader is making.
Following another trader without any knowledge often leads to earning a certain amount of profit but not knowing when to sell can result in a loss at the end of the day.
You cannot rely on the tips as they feel right till the time you are making a profit, but you won’t know when things start going in the wrong direction.
A trader must be self-sufficient in terms of his knowledge first. He needs to understand the stock market, how day trading works, what strategies work best for him, and how to work independently.
3. Trading using stop loss
Traders use stop loss as a significant tool while intraday trading. This helps them to evaluate how much losses they can bear and when to exit the market.
It is a type of order that the trader sets for the broker to sell his stocks as soon as the market hits below a predetermined price during the trading day.
Many times, day traders are focused on setting their bets on the market to earn profits as they don’t have much time in day trading and forget to place a stop loss while booking a buy order.
It is very crucial that an intraday trader not only focus on making large profits but also create a safe strategy to not face big losses.
4. Using emotions while day trading
Oftentimes, traders get emotional with their stocks. They develop sentiments with the stocks they have bought and hope that they’ll grow some day or the other. A trader should work using technical analysis while doing trading instead of getting attached to their investments.
With time you might develop an intuition as well to work with. But intuition does not mean guessing about stocks and making decisions emotionally about them. It needs to be developed over time.
One must follow the rules to stick by during day trading. Getting affected emotionally by profits and losses will hurt your next trades as a trader. For example, not setting a stop loss because you had a belief that it won’t sink is an emotional link.
5. Not analyzing the Market
Many traders do not analyse the market while placing their bets. They try to follow the trend and ride till the end of the day, but it’s not as simple as it seems.
As traders, they need to have an in-depth analysis of the stock market.
For example, sometimes traders use illiquid stocks to trade, which is a huge mistake as intraday trading is best done on liquid stocks so that there is a pip movement.
If a trader wants the prices to go up so that they can sell their stocks with profits, they need to make sure that the stocks are liquid enough. Hence placing bets on illiquid stocks is a rookie mistake.
6. Ignoring the Trading Plan and the Trading Diary
A trading plan is a roadmap that helps you on how to trade backed by a well-researched plan. This plan is followed by the trader and only altered when they find a better way to improve it.
It controls the entry and exit rules, stop loss positions, risk management, and position sizing rules.
It is a critical plan that needs to be created and followed by discipline to ensure that no random bets are made.
Traders often use a trading diary as well to record all the trades made during the day. This diary helps them to analyse their performance at EOD. They use this to learn and get better at their trades and strategies.
It helps them to analyse their moves and get better from them.
Therefore, ignoring the use of a proper trading plan and not maintaining a trading diary can prove to be a hefty mistake if you are looking to do intraday trading.
A trader needs to be aware of the market he is trading in. An in-depth knowledge will help him to place the right bets and make profits out of it.
People are making a living out of day trading. They are earning enormous profits, but only because they have a plan and strict policies to adhere to. If one starts acting without a plan or strategy in intraday trading, they will end up getting frustrated by the losses and finally exit.
Simply because they didn’t know how to do it. Therefore, you must understand the mistakes which you need to avoid while doing intraday trading.