This guide outlines the inherent problems with day trading for beginners, that can cause failure
Day trading is known to be a risky way to trade, as it has its ups and downs. It’s not likely that a person will be able to, on a daily basis, gain the amount of profit that he or she has aimed for. A person who is day trading will have both the ups and the downs of it. But unfortunately, day trading might give you more of its downs unless you take precautions with this type of investing.
3 causes of failure in day trading
There are many reasons why a person will never succeed in day trading and here are some of them.
1. The strategy you are using
Like any kind of trading, a strategy has to be put in play. It’s important for you to know exactly what day trading strategies are all about. There are several factors that these strategies depend on. Some of these factors include money management, time management, education, timing, and consistency. If you lack any of these or have a weakness in one of them, then you will be more likely to not succeed at day trading.
2. The social mood
The social mood affects the rate of your success or failure in day trading. To illustrate more, if you are buying something it means that someone else is selling. In other words, when a person loses money the other person gains this money. Cory Michael at Vantage Point Trading estimated that only 10% are succeeding in gaining money, while the other 90% are losing their money.
3. The psychology of being greedy
If it isn’t psychology that would affect your success and failure, what else would it be? Many people tend to day trade with greed, meaning that they invest and buy stocks with all the money they got just to get profit in return. As a result, those people end up losing their money due to the fact that they did not think wisely of the consequences that they might have. In other words, they only thought of the amount of money that they would gain rather than the amount of money that they will lose.
In an article by Dale Gillham in 2018, he mentioned that a person is more likely to be emotionally attached to the little amount of money in hand, not being able to afford losing it. When the psychology of being greedy kicks in, this emotionally attached person risks the money without thinking of the consequences and unintentionally makes the wrong decision.
Beginner day trading tips:
- Set aside time and capital : It is not possible to succeed in any area without dedicating time and resources to learn and develop. So know that you will not become a successful trader overnight or with little capital.
- Seek knowledge and train : before starting to trade, study and test exhaustively all the methodologies you can, from technical analysis to tape reading , always using the simulator, never a real account.
- Start Small : After learning, testing and developing as a trader, start your journey by trading small to gain traction. Only after you have accumulated a significant history of trades and results should you start to leverage your trades.
- Use stop loss : never open a trade without first strategizing your loss and gain target. Remember, it’s not just stop gain that a trader lives , stop loss is essential to stay alive in the game.
- Control greed : it is very common that, after a winning streak, traders want to earn more, increasing their positions. Caution: follow a coherent and realistic trading plan and don’t try to skip steps in your development.
- Follow a plan: build a trading system that matches your trading profile and never trade on the opinions of others. Follow your instinct and trust your own trajectory.
Important concepts in day trading
Among the most important concepts for those who are starting or who want to start operating, we can highlight:
Leverage
Leverage is the use of a loan from a bank or brokerage firm to operate a financial volume greater than that deposited in an account. The guarantee margin serves to mitigate the institution’s risk.
When the investor suffers a significant loss when operating with leverage , the institution offering the credit normally has the right to close the transaction without the client’s consent. This often occurs when the customer’s margin of guarantee is severely compromised.
Short sale
In intraday operations, traders can bet on the fall of a market without necessarily having the underlying asset in their portfolio. In trading on the same day, most exchanges allow the client to trade on both ends freely, as long as he does not carry the position to the next day.
In cash-settled derivatives, such as futures and options contracts, the client can be positioned in the sale to maturity, as it is a contractual negotiation, without involving the underlying asset in question.
Margin of guarantee
It’s the money you deposit with the broker so you can use leverage and boost your gains (or losses). Always trade at a size that matches your margin of guarantee; after all, the brokerage company itself can stop your position if you suffer a very large loss in a particular trade.
Trading platform
The best platform for day trading is the one that offers stability, speed and, of course, does not crash when trading. Therefore, if you want to be serious about your activity in the market, go for a professional platform with good technical support.
Summary
Day trading is very risky as it depends on many factors. There are a lot of reasons why a person might not succeed at it. Most of these reasons depend on factors that are hard to change or to adapt to. The factors that are gained by experience and trial are easy to handle and control, but other factors that depend on the psychological and social elements those are the ones that are difficult to handle. If you win you take it all, but if you lose you will be more like to take the downfall.
