1. Using size before your ready
I think this is hard for new traders. This is due to bad phycology because they’d rather be right than admit they were wrong. I myself have been guilty of doing this. Let’s say you’re about to take a trade on a stock XYZ (Mind you I’m using XYZ for this example this is not a real stock ticker at least I don’t believe so).
XYZ is moving in the premarket it’s about 9.20am and XYZ has a bid at 6.05 and the offer at 6.06. The bid gets hit with a little volume and the stocks holds. You see this and think the okay the stock is above the whole dollar mark and now it’s time to go long at 6.05. You place an order out onto the market. You’re confident that your order will get filled and it does. XYZ has gone up to $6 twice in the past month each time the pullbacks are higher lows. You’re so confident that $6 is going to hold you load up and risk all your capital on this one play. It’s getting closer to the bell and you are already counting the money in your head. You think to yourself Why does everyone say day trading is hard?
Clearly they must be talking about other traders who aren’t as smart as yourself. Then the markets open’s and a big seller and hammers the bid so hard it causes XYZ to crack the whole dollar mark. And you think to yourself that 5.70 will hold. You look at the Time and sales on your trading platform and see a bunch of green prints comes through with substantial volume. But the offer does not lift, instead, the stock heads even lower. Now XYZ is heading towards $5.50 you try to hit the bids but the price action is too fast for your order to get filled. Now all the Longs start to panic sell and the XYZ breaks through 5.50 and 5.40 like like a hot knife through butter. Now you have even more sellers that have piled on and all you can say is why the hell happened. The money you that you were counting in your head is gone.Even worse you lost more than 30% of your account. It can and will most likely will take you weeks and months to make for that loss. Not to mention the psychological damage that you’ll have to recover from.
I’m going to use a boxing analogy here, in boxing, there’s a saying that Coach will say to their fighters it called an “Educated jab,” this is a fast punch combination that starts as jab. You start with your basic jab, you snap your handout and then back to your face while pushing forward with your feet. Your next punch is a uppercut with the same hand. Again snapping your hand out and back to your face while pushing forward with your feet. The last punch is a left hook which again you snap out to your opponent head while pushing forward with your feet. Think of Roy jones jr in his prime when you think about this punch combo, fast strong sharp.
Now if I tell you to use an Educated jab in a fight when someone is throwing punches at you and you haven’t trained to use this punch you will most likely return a blank stare. And you will most likely get knocked down if not out. If you try to use size before how to manage that size you’re going to blow up respect the process.
1. Not listening to experienced traders:
You’ve saved up enough money to fund a trading account. You’ve opened an account with a broker that doesn’t have the pattern day trading rule. You even join a trading chat room, you’re going to show all the other traders her that you will be the next trader superstar. You will be so good that a buzz will be generated about you.
More experienced traders have taken you under their wing they see the potential that you have. They have experience, they know that you have to start out small, this is because you’re going to be emotional in your trading when you start out. With a head full of pride you choose to not listen and you start making trades that you are not making. Instead of starting with support and resistance trades, you short into a big spike without knowing the catalyst for the stock or the history of the stock. Without knowing it you shorted a low float short with news of a new contract with a blue chip company (Apple, Microsoft,Intel, Netflix). Now you on the wrong side of the trade, you reach out to one of your mentors and asked them what to do. They quickly tell you to close out you position immediately before it’s too late.
You cover your short and check to see how much you just lost on this bone head trade. After looking at the P/L you see that with that you’re almost wiped out. You now get inside you own head and start to think that trading is rigged. That you can’t do this, that anyone that does make money on this has to know something you don’t. Perhaps their stock pumpers, or just selling services so and their subs are sheep? A million thought run through your head all of them saying that you can’t succeed and if you believe that then no you’re not going to succeed in trading.
You asked a trader that is consistently profitable what you should do next. They tell you, “Next time listen” stick to your best setups, trying to be a trader that you’re not will result in you blowing up your account.
I’m going to use another boxing analogy here. When I started boxing the first thing I learned was called the “Boxers Stance” this was how you were supposed to stand. This “stance” the is stance how you position your hand’s, shoulders, torso, legs, and feet. (Sorry if you thought the jab was the first thing a fighter learns.) Without this basic fundamentals, any training after that would be pointless. The stance teaches you balance, it teaches you how to use your hands and feet in sync. The same goes for trading you have to learn the basics, and if you don’t listen to traders that master the basics you’re going to without a doubt blow up.