I Lost So Much Money Making These Day Trading Mistakes

Most professions look at least somewhat intimidating to outsiders. Everyone knows that careers in medicine and law involve many years of training and apprenticeship. If you’re into sports, all it takes is watching one track meet or hockey game to conclude that serious practice and skills are needed even to play professionally, never mind to win.

Then there’s day trading. Anyone over the age of 18 can open a US account with a minimum of $25,000 or $500 offshore and be a self-proclaimed day trader. But that certainly doesn’t mean they will be profitable.

No one demands that you hit the books and study the fundamentals. There are no final exams, internships, or certification boards that will finally allow you to “practice” this profession.

That’s only half the good news: People work like dogs in B-School, only to work like dogs for another decade on Wall Street before they might become a fund manager. In a good year, they’ll be high-fiving each other if they generate a 10% return in six months.

With day trading, it’s not likely — but it is possible — to have returns of 100%, 200%, even 600% on a stock. In a single day.

Related: Learn More About the Stock Market with This $40 Day Trading Bundle

Mistake #1: Trading without knowledge or discipline

This crazy contrast between no barriers to entry and potential mind-blowing returns is irresistible to new traders every day. They may even experience some beginner’s luck, as I did. But here’s the reality: If you want to become a successful day trader over the long term, you first have to acknowledge that most new traders will lose money and end their “career” as roadkill. Then you must acknowledge that to avoid that fate, you need to do things differently from how most people do them.

First — though no one requires it — you need the self-discipline to learn the principles of successful day trading. Here’s an example. When new traders buy a stock, and it goes down, they don’t have the discipline to cut their losses. Instead, they often buy more, rationalizing that they are being smart by dollar-cost averaging. And besides, if the price was high recently, it will surely bounce back.

Unfortunately, many stocks never return to the highs that made them social media darlings in the first place. We have a name for people who buy high, maybe buy more on the way down, and now have their money tied up in a stock that’s going nowhere: They’re “bag holders,” because they’re left holding the bag with only a loss to show for it.

Second, you need the self-discipline to follow through on the principles you learned. If you made it through that episode of ending up a bag holder on a stock, you now must resist the urge to do it again. When your plan doesn’t work, and you are in a stock that’s heading south, you must sell based on the parameters you established before you ever took the trade. No matter what your emotions are screaming at you to do.

Related: 5 Things You Need in Order to Be a Successful Day Trader

Mistake #2: Taking the path of least resistance without a strategy

There is no shortage of “experts” on the financial channels. They’re supremely sure of themselves, and after all — they must be right, or why do they have their own show, year after year?

Getting your day trading stock recommendations from such people is a mistake. Most of them are not day traders, who must close out their positions at the end of each day. Even if they were day traders, it’s still a mistake. Here’s why. People regularly ask me: “Ross, I’m fast with a keyboard. Why can’t I just follow what you buy, when you buy it, and when you sell it?” It’s called “mirror trading,” and it doesn’t work. Not only do the markets move too quickly for you to get in and out exactly when I do, but my risk tolerance will not be the same as yours.

A strategy is not the same as a hot tip; it’s a set of parameters you follow. It covers the type of stocks you’ll track and the conditions you’re looking for, among other things. For example, some parameters might be a focus on stocks between $1 and $10, a 2:1 profit/loss ratio or better, and a catalyst in the form of breaking news. The way to build a solid foundation of knowledge and experience is to adopt a strategy and then learn it so thoroughly that it becomes as second nature as riding a bike.

Mistake #3: Looking for the Holy Grail

In one sense, this is the opposite of the mistake above of not having a strategy. This affliction has too many strategies. It’s the Shiny Object Syndrome, and it happens after traders suffer bad losses — but not career-ending ones.

I can’t tell you the number of traders I’ve seen take this route. Right after they dump a losing stock, they dump the strategy and look for something else. They’ll go from small-cap stocks to large caps, then futures, then crypto, and back to large caps. All the while, they’re looking for some “perfect” combination of technical indicators that will work 100% of the time.

Related: 4 Things You Need to Practice for Trading Success

Believe me, I’ve searched thoroughly for the perfect set of indicators and am convinced they don’t exist. I’m also convinced that I don’t need to find a perfect strategy to do well at day trading — I just need to have a good plan and excellent discipline.

Work at your day trading profession. The fundamental knowledge of day trading is not that hard to acquire. What’s really difficult is treating it like a profession. That means being willing to put in practice, keep learning, and hone your skills while being patient. The Japanese have a great saying: “Fall down seven times, get up eight.” It’s solid advice for any day trader.