Intraday traders often make the worst decisions and make big mistakes that lead to disaster.
In intraday trading, and in particular in some of its more aggressive modalities, such as ‘scalping’, time is synonymous with money. The longer the exposure to the market, the greater the probability of ending up losing.
For this reason, intraday traders tend to be in a rush to try to take advantage of market movements with the least possible exposure. The problem is that many times the best decisions are not made.
Getting a good list of trading books is always a good idea. But knowing yourself and mastering the psychological aspects of trading is the best investment.
There are many temptations to liquidate positions in a thoughtless way, but the good news is that the main mistakes that usually turn the ‘day trader’ into a loser have to do with the psychological aspect, and they can be corrected.
1.- Not knowing how to lose
Nobody likes to lose, but for the intraday trader it is essential to admit defeat. Liquidating a bad position with minor damage is the first step towards good results.
There is no system that is one hundred percent foolproof. Everyone fails sooner or later. Therefore, the success of trading lies in knowing how to cut losses. The key is not to open a position without knowing in advance what is the maximum amount that can be lost.
Of course, the ‘stop loss’ is the right tool to avoid falling into this error. All traders have ever thought that there is nothing more painful than jumping a ‘stop’. In reality, the loss that this tool avoids will almost always be the smallest.
2.- Change the time frame
The previous error, the non-application of the ‘stop loss’, will inevitably lead to the second great failure, the change of the time frame. If an operation is seen to not work, there is no worse idea than to wait and see if it turns around.
In other types of trading it might make sense, but in intraday trading the worst decision a trader can make is to wait for the market to agree with the always strange idea of increasing the time frame.
Increasing the ‘stop loss’ and the potential losses under the justification that in larger charts the operation could work is a great nonsense. Any operation that was thought for a five-minute chart, for example, will hardly go well in another of fifteen.
3.- Do not collect benefits
Another very typical mistake is to let go of a position that has already reached the profit target determined in the trading plan. It is something that traders do many times out of greed, or worse, out of ignorance.
The right thing to do is to collect profits when the goal has been reached. Or at least, do it partially. This way of acting is especially recommended when there is news that could turn the market, such as macro data in the United States that usually comes out at two thirty in the afternoon.
And if someone wants to hold the position, they should at least adjust the ‘stop’ higher and protect what they have already gained. Trading the news, the ‘event trading’, is an activity only recommended for very experienced traders.
4.- Thinking that a value cannot fall further
Traders love volatility and intraday traders even more. For this reason, their eyesight is often blurred when they see that some value fits a sovereign beating.
They are hoping to get long and take advantage of the rebound that they assume will come imminently. The problem is that nothing ensures that a value that today sank by 15% will not collapse by 30% tomorrow.
Those who fall into this error forget one of the classic maxims of the market. The trend is friend. And if a value falls, surely it is for some compelling reason. Or simply because there are more sellers than buyers.
Therefore, defying the trend and trying to trade intraday waiting for the opposite move is an idea that almost always leads to disaster.
5.- Launch orders at the opening
It is the typical operation of traders who try to take advantage of some news that appeared at dawn, before the market opens. Place an order and expect big profits when the market gets going. But it is something that rarely happens.
If a strong bullish reaction is expected and it is operated in this way, the most normal thing is to buy at highs of the day and have to bear losses during most of the session.
The most sensible thing to do is to wait at least half an hour for the market to settle and set a trend, if at all.