Hidden Dangers Every New Trader Faces on The Market

Day trading on the market is not for the faint of heart. It requires skill and dedication, but also the ability to fight basic instinct. Our emotions guide us humans in the moment and we’re hardwired to react to them, but that’s a profit killer in day trading. New traders learn this lesson the hard way in dealing with their own impatience, greed, anger, fear, and hubris. The best traders are those people who can make emotionless decisions and stick to their strategy without rigidity when the situation calls for adapting to the market. Keep these dangers in mind when day trading to help mitigate your risk.

Your Broker Might Be Bad for You

When you’re setting up your first trading accounts, you want to make sure the broker is trusted, and you entirely understand their fee schedule. Novice day traders often forget to account for the cost of their trades, losing profit once the trade has been made. You should also be careful of any international brokers that are not well established. Scam brokers are a common way to get foreign investors giving money they will have a hard time taking back. Performing an online search for reviews of the broker you’re considering for your investment strategy will return any complaints on trading forums. Day traders commonly run into the problem of slow broker quotes and even brokers trading against them. Day trading requires a direct access broker that provides software to send the order directly to the exchange. Every second counts in day trading and a slow broker that sends trades in batches can mess with your strategy.

Use the Correct Order Types

Novice day traders often trip up when placing orders by not understanding the difference between a limit order and a market order. A limit order lets you buy or short a stock by a set price, while a market order takes the current available price. All of your strategic positions should be entered as limit orders. Market orders are for when you need to exit a stock quickly. Learn how to use stop-loss orders and profit targets to take gains and minimize losses as the market moves. This knowledge should come as natural to you as flicking the turn-signal the right way when executing a turn. There are plenty of resources available online that will teach you how to use the different order types before you get your financial feet wet in the market.

You Are Your Worst Enemy

That’s right. New traders read articles saying they must be emotionless and develop a strategy, but don’t understand how hard emotions are to resist in the heat of the moment. Often newbie mistakes can be attributed to impatience or greed at some level. You never know how you will react to a situation until you find yourself in it. Some newbies abandon their plans at first sight of danger, mitigating any risk management strategy they built-in. Overtrading can result in you becoming too afraid to trade if you end up taking several losses in a row. Not taking personal responsibility for these losses can lead newbies to make the same mistake over and over again. Take stock of your emotions when these situations arise because you will face them as a day trader. Work on yourself and understanding how you can trade through your feelings, rather than ignoring them.

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