Intraday trading is not everyone’s cup of tea. One has to be on guard all the time and a few wrong decisions can substantially destroy your portfolio at the drop of a hat. To avoid an occurrence of such magnitude, one must be careful about not committing any of the common mistakes some investors tend to make.
For instance, not having a strategy can be a bad strategy, or changing your plan every few hours before the old one fructifies can be financially devastating.
We give a lowdown on some of the common mistakes made by intraday traders:
1 Altering your strategy too often: At the outset, you must have a proper full-fledged strategy in place. Trading without a strategy is equivalent to taking a flight without a destination. You will wander from here to there and not reach anywhere in particular.
And importantly, within a trading day, strategies ought not be changed multiple times. One must embrace a good strategy and then stick to it. Every few hours, if you doubt your decision, then no decision can fetch you good returns.
2. Exiting on a whim or based on rumours: Although it is imperative for an investor to keep their eyes and ears open all the time. But this suggestion should be taken with a pinch of salt. Every news and rumour cannot be acted upon, especially when you are a rational investor.
If you have a thought over plan in place, then it is not wise to undermine that and act upon a rumour that landed on your desk out of the blue.
3. Not putting a stop loss: One of the major mistakes which new investors can make is to fail to place a stop loss. A stop loss prevents you from incurring huge losses when the stock starts to tank. It will make sure that you exit the stock when it slides below a predefined price point.
4. Trading in illiquid stocks: For intraday traders, it is important to trade in liquid stocks which enable them to buy and sell any time they want. On the other hand, when they deal in illiquid stocks, their strategy is likely to fall flat on account of lack of buyers. So, trading in illiquid stock is a strict no-no for day traders.
5. Eating more than you can chew: There are some good and bad days for intraday traders. On the days you tend to win, you will be tempted to put in more money than you can afford. Avoid such temptations because markets can surprise you any time.
6. Being too attached to a stock or sector: When you invest in a stock or a sector, you do it as part of your larger plan. At times, the plan needs to be tweaked to bring it in sync with changing realities and situations.
In such a situation, you might have to offload some of your holdings you didn’t plan to. Emotions can play a spoilsport in intraday trading. So, always remember to stay true to your larger goal of increasing your earning while avoiding losses.
So, it is important to avoid these mistakes so that you can avoid your losses, and improve your earnings.