24 Biggest Mistakes to Avoid While Day Trading

Day Trading – The high leverage game of retail forex trading just got more exciting. With day trading sessions on, traders are making quick gains (and losses) all in a short span of time. A little knowledge is a dangerous thing. With adequate knowhow, discipline and an approach that relies on alternatives, you too can win the prize (and score the goal) in the markets.

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  1. Averaging Down : The Flip-Side

Averaging down is not a good way to move up in day trading sessions. While most traders try to avoid this from happening, it inevitably does. There are many problems with averaging down.

The first is that a losing position is held which proves costly not only in terms of time, but also effort and money. A better position is a step up the money ladder and day trading is all about anticipating the wins (and the losses) before they happen. For every dollar or rupee lost, larger returns are required on capital for bring back losses.

For instance, for a 50% loss sustained, a 100% gain has to be made to even things out. Averaging down in such a situation can lead to massive losses or margin calls. This is because trends can stay put even when traders are liquid-more so if capital is being added as the position moves out of winning gains.

Day traders are also sensitive to issues and the short time frame for trades translates into opportunities that can be enchased as they take place. It’s important to exit bad trades as quickly as it to enter good trades. Day traders should be alert about how news events are moving the market and what direction is the trend taking it in.

Taking a position before a news announcement can harm a trader’s chance of success. There is no easy money…it’s all about working hard and thinking smart.

  1. Don’t Trade Right After the News

day trading

A news headline may hit the markets which then start to move rapidly. This does not necessarily mean you will earn money. If you do not have a solid training plan, trading is like gambling. News announcements lead to panic reactions and emotional responses, something which really harms day trading.

  1. Wait for Volatility to Lessen

Day traders should make sure that volatility subsides and there is a distinct trend for developing after news announcements have been made. Fewer liquidity concerns, the more effective management of resources is possible. Stable price direction is therefore likely.

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  1. Don’t Risk More Than You Can Afford to Lose

Excessive risk does not hold any returns and the risk reward ratio has to be comfortable otherwise traders will lose in the long run, something not usually associated with day trading. No matter what the period of time, traders should risk no more than 1% of capital within a single trade. Professional traders also risk less than 1% of the capital. Day trading also means extra attention to a daily risk maximum that needs to be implemented.

Daily risk maximum can be around 1 percent or less of the capital and equivalent to average daily profit over a period of say, one month. By using the risk maximum, traders ensure that they do not risk more than they can afford to lose. Forex leverage can quickly become a double edged sword and unrealistic expectations come from varied sources.

  1. Accept that the Market Can Be Illogical

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Trading expectations are often imposed on the market. We think in terms of what we desire rather than the correct trading direction. Market is not interested in what a person needs. In short, long as well as medium term cycles, markets can be volatile or trending depending upon trading conditions.

To adjust for changes in the market, you need to formulate a trading plan and find out if it yields steady results. Accept what the market behaves like. Remember that capital growth over time can be accompanied by increase in position size to yield higher dollar returns. New strategies can be implemented with minimum capital to begin with. New strategies can then yield positive results. As the time expands and day trading progresses, you may need to modify your strategy.

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  1. Entering Day Trading without a Plan Can be Disastrous

A common mistake made by traders is entering the trade without an effective plan. Trading without a plan leads to mistakes, especially if you don’t know what you are getting into. Protection against losses means adjusting entry exit and most importantly escape price or stop loss.

  1. Don’t Leave Out the Margins


Day trading can be make or break depending upon the margin. When you borrow from a broker to purchase securities, margin is that valuable segment of the trade which can increase profits. Margin can be a valuable ally for day traders, if used effectively. Trade with money you have, not cash you borrowed.

  1. Don’t Try Chasing Trades

A common error during day trading is to chase trades. Rather than concentrating on steady and stable returns, day traders may be tempted to chase after fast moving stocks. Borrowing more from the brokerage than they can afford, this will wipe out the day traders account and give day trading a bad reputation. Chasing trades when day trading stocks shoot up can lead to plummeting fortunes. If you miss out on a stock, don’t chase after it in the hopes that you can catch up.

  1. Not understanding Markets or Limiting Orders can Have Consequences

There is always a toss up between market and limit order. While market order is an order to purchase or sell the stock at current market rates, limit order permits establishment of maximum or minimal price for trading security. Market orders can be filled fast but the market should not control the order. Similarly, limit orders can permit the parameters to be controlled. Whether limit orders or market orders make sense to you, you need to be clear that you cannot miss a fast moving stock to save a few rupees. High quality stocks which are liquid in nature permit the use of either market or limit order.

  1. Adhere to Tips, pay the Price

In what might seem counterintuitive, it is important day trading tips to remember that those who want to help you need not be your best friends. Market informants often have agendas and nothing comes close to fair trading. Successful day traders think about what they want to infer and make judgements accordingly. They do not get swayed by what others think.

  1. Refusing to Cut Losses Can Be Expensive

Human nature is inherently hopeful. This means day traders could be hoping for a turnaround. This can be a lethal mistake. Refusal to cut losses can harm your account. If your stock is headed south, there is no need to continue with it on a journey to nowhere. Prevent small losses from turning into larger ones.

  1. Timing is Everything in Day Trading

Trading too early or late, too little or too much can be disastrous. Remember that the first few minutes of trading are always confused and the competition towards the opening or closing bell is always with institutional investors and high frequency trading experts- in other words, the big fish in the sea. So if you wade in too deep, don’t expect to stay afloat because day trading is not only about making profits, it is also about avoiding losses. When indicators become choppy, make sure you draw back.

  1. Discipline is Everything

In the markets, discipline is what it takes to be a better day trader. Develop strict rules and do not rely on emotions. Day traders can also use technical analysis. For example stochastics can be used to chart if a stock is over or under traded.

  1. Rookie Traders Look for Magic, Experts Know Better

Don’t look for a magic bullet or a miracle cure in day trading, because there is none. Listening to the charts is as important as listening to the news and there is no easy way to play markets. Strategy and discipline is needed to make sure you gain profits.


  1. Uninformed Day Traders Lack Knowledge

A day trader should not think that anyone can make money in the markets. To be successful, you need training. A consistently winning trader starts with paper trading and studies it hard enough to discover how the market works. Going through training for day trading can be as intensive and comprehensive as a doctoral degree course!

  1. Day Trading is All About Taming the Lion

Making money off small variations in the price of a stock requires skill and in-depth understanding. High speed internet connections and plenty of nerve can ensure day trading becomes easy to carry out. But having a strong and confident approach is also important. Much like an animal can sense fear, so can a market. You need to be like a lion tamer…confident and bold.

  1. Come Up With a Business Plan

Day trading strategies is a business proposition like income production. Business plans should include list of equipment needed to be successful, set of day trading training courses and projection of minimal profitability over the short and long term. Keeping track of the budget would not be a bad idea either. This includes a record of expenses linked with day trading.

  1. Have a Solid Trading Philosophy

You need to identify performance metrics and discover which strategies work best for you while day trading. This includes defining what gives you an edge over others, identifying the trade of trade you are looking to initiate and defining the exit strategy. It is also important to be able to assess when you should close your position.

  1. Make Allowances for Losses

In a one day match, it is not possible to have perfect batting average. Similarly day trading involves accepting the losses as much as appreciating the wins. Practicing trading is important and thanks to modern technologies and day trading methods, it is also easy. Markets involve a think or swim approach, because sinking is easier than surviving especially for first time day traders.

  1. Follow a Trading Strategy

It is easy to bite the bullet and get caught up in emotions. This can lead to dangerous day trading activities like impulse selling or buying. You need to craft a trading strategy that promises success, not failure. Most importantly, you need to keep your emotions out of the equation.

  1. Don’t Change Your Strategy Too Often

Many times, day traders will try to change a strategy because it does not seem to be working. They do not consider external factors such as market dynamics or volatility. This is their stumbling block.

  1. Use the News

Check out financial news reports so that you can make out what is day trading happening in the markets on a daily basis. Analyse each trade in the context of news you get and choose successful trades that are profitable.


  1. Maintain a Trading Diary

A trading journal can help you to monitor losses and gains in an organised manner. You can even keep an electronic journal if you find it more easy.

  1. Always Do Post Trade Analysis

You need to adapt to the changing markets and this is only possible if you modify your strategies depending on this. The changing dynamics and inherent volatility of the market has to be understood, not feared. If wishes were horses, day traders would ride! Unfortunately the very opposite is true. So, use a stop loss with every order to avoid a bad trade. Use limit orders well and don’t chase the trend, look for stable returns instead.


Not knowing what point to capitalise on the markets is perhaps the biggest problem in day trading. Using principles of psychology or behavioral finance is important. You need to know what works and (more importantly) what does not. There is a difference between self belief and prophecies that marks the variance between day trading and gambling!


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