How to Avoid Day Trading Mistakes

[Leth]

How to Avoid Day Trading Mistakes
by Unknown Author

Wall StreetDay trading for beginners is like lion taming, except more expensive. It's a risky and challenging pursuit: buying stocks and selling them again in the same day, making money off tiny fluctuations in the price of a stock over only a 12 hour period. For many years, the tools of day trading were not available to the average investor — real time stock results, analysis tools and access to instant trades (without the help of a broker). Today, with high-speed connections, anybody can try to day trade. For those of stout heart, here are some common pitfalls to avoid.

1. Understand day trading. To say that beginners can day trade is a little deceptive: the first step for any beginner wishing to day trade is to learn as much about the stock market and regular investing as possible. In addition, you will need to be exceptionally good at math. Finally, you need to realize that day trading is not about owning stock. Rather, it is about purchasing stock at a low price and selling it by the end of the day for a profit if the price has gone up. In day trading, at the end of the day, you own no stock.
2. Understand the stock index. Those who do not understand day trading will also not understand how to use the Stock Index to measure the overall performance of a particular stock group. Knowing the performance of a particular stock group can help you make wiser trading decisions on individual stocks. The performance of stocks can be measured in groups of stocks of a particular field, such as utilities, or in groups of stocks representing a wide variety of industries.
3. Acquire adequate working capital. Working capital is not money that you need to pay bills, or money that you have committed to another investment. It is money solely dedicated to this endeavor. Because Day Trades usually occur in a Margin Account, Broker/Dealers registered with NASD/NYSE require that day traders keep $25,000 in equity in the account on any day that day trading occurs.
4. Purchase the right equipment and resources. For on-line trading, you need a high-speed Internet connection. Becoming a day trader is not cheap. In addition to reliable and possibly even redundant high-speed connections, you will require specialized software and a variety of different analysis tools, not to mention your real-time research tools (including daily real time access to stock quotes and ticker feeds). Be prepared to spend a significant amount of money (in addition to your working capital) before you place your first trade.
5. Create a trading plan and stick to it. Successful traders have a plan. Without one, they can easily lose thousands in seconds. Not only that, but they need to have financial plan set, with trading goals and limits.
6. Keep track of the market. If you want to be successful at day trading, you need to keep an eye on the market all day. You need to read charts and news, research the right stocks to buy, and perfect the strategies that make you successful. You also need to have access to breaking news that may cause sudden price changes. Day trading is a full time job.
7. Practice good judgment. If you are ill, cranky, depressed, or sad, those are days when you may want to take a break from trading. Otherwise, you could make costly mistakes. Furthermore, trading while you are stressed out is also a mistake. On your days off, you can still prepare yourself for future trading. For instance, you can prepare yourself for the next time you trade by doing paper trading: the act of involving yourself in simulated trading.
8. Keep detailed records. As in any business, keeping detailed records of all your transactions is vital for many reasons including profit and loss analysis, taxes and much more.
9. Save your profits. Whenever possible, leave your profits in your account and do not spend them. Run your day trading like a business. Do not reinvest all your profit back into dangerous trades.
10. Cut your losses. Do not let a loser run in hopes of it rising again, unless there is sound evidence it will.

-Day trading is not for amateurs. This is only an introduction, but not enough to prepare you to be instantly successful in day trading. For those of you looking to learn these skills, many companies that offer the services day traders need also offer training and education in the field. You may also consider reading a book on this topic.
-Prices on the market need to be set equitable to the market value of that stock. If you are not sure of the price of a share of stock, you may consider consulting a professional stock broker who can answer all your trading questions. The price of stock is often contingent on future events that may or may not happen.
-Day trading is the most risky and volatile investment strategy. Due to short time lines that prevent any company research or other traditional stock analysis tools, day trading is often regarded more like gambling than investing. According to some professional money managers, 90% of day traders lose money. This is because "market makers" that act to keep the bid/ask spreads in the market close, are authorized by the US government to be able to see supply and demand for the stocks they are making a market in. Supply and demand determin the price of stocks. You are going to be trading with these "market makers." These groups (often brokerages) have more supply and demand information than the average day trader. Instead of day trading, try to find long-term trends and invest with the trend for short periods of time like a few days, weeks, or months. This will help to cut down on trading fees.