How NOT To Day Trade
I know someone who tried day trading three times. The first
time, it took two weeks to lose $17,000. The next time, it took
two months to lose $17,000. The first attempt drained away money four times
faster, but the second attempt was really the greater failure
because four times as much time was wasted! The third time
was better: this person broke even over two weeks, before quitting to
go sailing and do other important things.
I don't encourage you to day trade, but anyone who does should
remember the first law of making money: preserve your
capital. Some day traders even believe that's all they
really have to do. They can lose money on 70% of their
trades, but if they exit those losers early and then keep the
winners until their run-up is done, their experience is that they
can make money.
I've never made much money day trading, but
having seen the financial disasters that can befall hopeful day
traders up close and personal, I can definitely advise you on
how not to day trade:
| |
|
|
| |
How NOT To Day Trade 
|
Time to complete:
| None, if you decide not to day trade |
|
Money you'll spend:
| $0 if you don't day trade |
|
What you'll get:
| Nothing, but at least you won't lose any money. |
List Of Money-Losing Day Trading Principles:
Don't Prepare Yourself:
- Don't go to seminars on day trading, and don't waste much time
using "paper trading" or freely available computer
simulations. A smart person like you can just skip the
preliminaries.
- Come up with a really complex "system" right off the
bat. You'll need to consider every market factor to compete
with the big boys. Always do a lot of complicated analysis before
entering or exiting a position.
- Expect to become a success instantly, or at least very
soon. There's no reason why a smart guy like you can't
succeed immediately (even though 80% of day traders ultimately
fail and most of the rest get off to a very rocky start.)
- Start your day trading career by making big trades of $10,000
or more. You've got to risk money to make big scores soon,
right? Besides, it's more exciting to make big trades--
love that adrenaline rush!
- Don't spend much time developing any skill in anticipating the likely
direction of stocks before you start day trading.
- Don't get access to real-time market quotes, because stocks
don't usually fall all that fast.
- Use a stock broker to day trade. Don't bother using a
fast Electronic Direct Access Trading service, or at least an
online service like AmeriTrade that allows fast trades.
- Don't find a mentor-- you're smart enough to go it
alone. And don't use proven methods that have definite
rules.
Don't Use Your Common Sense:
- Risk much or all of your capital on someone else's day-trading advice.
Analysts are smarter than you so they're probably right. That
hot tip you got is almost sure-fire!
- Trade low-volume stocks. You're pretty sure they'll go
up, so it doesn't matter that they'll be hard to dump if they go
down.
- Don't keep detailed records of your trading results to
analyze your track records; nor should you print out and study
any stock charts of actively traded stocks.
- Before buying a stock, don't look at the spread between the Bid and Ask (what you
will buy the stock for, and what you'll get paid when you sell
it.) It's usually less than 1%.
- Hold positions overnight. It's a pretty safe world, so
the market's not likely to go down.
- Don't let your winners run: if a rising stock starts to dip, that's
a sign it's about to stab you in the back and ruin your profits.
- There's no need to maintain discipline in adhering to sound
day-trading principles. If you see a hot stock, throw your
principles to the wind and ride that baby!
- Rest assured that any real-life character flaws you may have (i.e.
undisciplined, overly emotional, lazy , greedy, prideful, pessimistic,
impatient)
will not rear their ugly heads and affect the quality of your day trading.
Financial matters can be totally separated from your day-to-day personal
character.
Above All, Don't Cut Your Losses:
- Be willing to risk more than 1% of your capital on
your day trading positions. If a stock drops one percent, that's a sign it's
just about hit the bottom and will soon go back up!
- Be proud enough of your stock picks and your wonderful perceptiveness
that led to their selection: hold on to your pride even when your
stock goes down.
- Don't set stops to automatically sell a stock when it dips
lower than you thought it would. You're smart and disciplined enough to
handle it all manually.
- Trade against the trend: if the market is going down,
so what? Your well-considered pick is likely to be the exception.
- Get emotionally involved in your stocks, even when they go
down.
- Don't set a daily limit for your day trading losses.
The market's bound to turn around at any moment, and besides it's
exciting to stay in the market and keep making risky trades.
|
Sponsored Links
|
Further Reading:
 Traders101.com, a site for beginning day traders.
 Investing Magazines to help you learn day trading.
 Getting Started in Tax-Smart Investing, a top-rated
book now available at Amazon.com. The new tax laws give you added
tax-saving investment opportunities, this book shows you the legal tax
strategies available, including business ownership and estate planning tactics.
|
|  |
|
|
|
Copyright (c) 1998-2007 Ark Royal Software.
Legal Notice, Disclaimer and Terms Of Use
|
