Most Common Mistakes Traders Make

June 24, 2021

Day Trading Mistakes

If you have been trading for a while, then there is a good chance that you have made some trading mistakes along the way. Traders would do well to focus on what is obvious and join the trend as long as it is possible. Failing to adapt to changing marketsOnce you find a way to consistently make money trading, the work does not end. Financial markets are ever changing and evolving organisms. If you fail to adapt to changing market conditions, you will be out of business shortly after.

Day Trading Mistakes

You are simply taking a shot in the dark and hoping for the best. Mistakes in technical trading can be two-fold, either due to lack of knowledge or poor execution. Over-confidence is the belief that one’s abilities, knowledge, Day Trading Mistakes or qualities are better than average. This can be risky because there is no sound foundation to base your trade upon. You will make the same mistake over and over again until you realize the root of the problem.

Quarantine and a stimulus check are bringing out people’s inner day trader

You short a stock when the market is rising or buy it when the market is falling. This may be a difficult trading tactic for a beginner. Scalping and trading the news require a presence of mind and rapid decision-making that, again, may pose difficulties for a beginner.

  • Fortunately, you can trade smarter by creating and sticking to a trading plan, as well as by protecting your investments.
  • This problem is linked to the traditional work ethic that’s instilled in most people.
  • While a market order is to purchase or sell the stock at current market rates, a limit order permits establishing a maximum or minimum price for trading security.
  • This is because OTM call options are inexpensive and have a range of around 100,000 to 1 million.
  • If you risk too much you are making a mistake, and mistakes tend to compound.
  • A mass of orders begins to execute immediately as the markets open in the morning, contributing to price volatility.
  • They then buy a $10 trading robot from a random website or from an unknown guy in some trading forum without even understanding what the robot does and start trading their own money.

This will give you the peace of mind that you won’t be left high and dry without an exit strategy. This can be jarring if you haven’t factored it into your decision-making when trading options, so it is important to be aware of the possibility. Learning to trade options is like going to school for a whole different trade.

Cutting Losses Too Late

Decide what type of orders you'll use to enter and exit trades. A market order is executed at the best price available at the time, with no price guarantee. It's useful when you just want in or out of the market and don't care about getting filled at a specific price. Lastly, expectations must be managed accordingly by accepting what the market is giving you on a particular day. In general, traders are more likely to find success through understanding the common pitfalls and how to avoid them.

Day Trading Mistakes

This trend happens with one of the emotional mistakes of FOMO; we already dived into that concept earlier. We all have heard the saying, “buy high and sell low.” However, too many novice traders do the complete opposite. Many new traders will simply open up their platform, look at the market, and place a trade. They are often chasing after the last couple of candles or they see an opportunity to get in “on the cheap”.

Mistake #6: Failure To Limit Your Risk

It is not investment advice or a solution to buy or sell instruments. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. While technical analysis is a well recognized study, other analysis, such as fundamental, may assert different views. So I’ve just covered the top 5 day trading mistakes that beginners make.

CFDs allow traders to speculate on the price movement without owning the underlying asset. Historically, day trading was an activity exclusive to big financial firms, banks and financial professionals. However, with the growth of online trading platforms, day trading has become more accessible to retail clients outside the financial sector. Conversely, when we start losing, we hold on to the losing position longer in the hope it will turn upwards at some point. We have the irrational belief that we will reduce or wipe out the loss.

What is the reward:risk ratio

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 added as the position moves out of winning gains. Chasing hot stocks is risky and should be avoided because momentum can quickly turn against you. It’s all right to follow strong stocks whose price is trending higher — just don’t chase them. Day trading is enough of an emotional experience without you buying or selling in a panic. Trying to manage anything more is for jugglers, not traders.

  • You also need the stats of how your signals performed in backtesting or with simulator execution to forward test and verify the robustness of your strategy.
  • Start by recognising that day trading for a living is tough.
  • The trading plan is the foundation of all your trading endeavors.
  • Most day traders don’t mess around with different asset classes or trading strategies, they stick with what they know best and make minor tweaks instead of wholesale changes.

You want to learn how to make money in day trading first on a simulator and with backtesting strategies and not by losing money. Day trading requires speed of execution and knowing your platform. Trading with a demo account first is a great way to learn your way around how to exit and enter trades quickly and how to use hot keys. You also need the stats of how your signals performed in backtesting or with simulator execution to forward test and verify the robustness of your strategy. Pilots learn in simulators before flying real planes to avoid costly mistakes and a simulator can do the same for day traders. What day traders actually do is follow a strict set of rules and minimize mistakes as best they can.

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