Intraday trading is an exciting and lucrative way to make money in the stock market. Individuals and businesses who do not have funds to lock up long-term investments use intraday trading to bulk up their trading capital.
However, intraday trading also comes with different risks and challenges that, if ignored, can bankrupt a trader. That’s why it’s essential to look out for common mistakes that have wrecked other traders and avoid them while doing intraday trading.
We’ll examine some of the top mistakes you must avoid while doing intraday trading in this article, to give you a seamless trading experience and career.
But first…
What is Intraday Trading?
Intraday trading, also known as day trading, is a trading pattern where traders buy and sell securities within the same day. The goal of traders here is to make profits by taking advantage of the slight price movements in the market.
Intraday trading is common among active traders who understand market trends and can make quick trading decisions as the market fluctuates. Day trading requires strong trading skills, discipline, and patience because traders need to have the ability to identify profitable opportunities in the market and move quickly and efficiently to execute the trades.
The lack of relevant trading skills, discipline, and patience lead intraday traders to make the mistakes they should have avoided.
10 Mistakes to Avoid While Doing Intraday Trading
Here are the top 10 mistakes every intraday trader should avoid when trading in the stock market:
1. Not Having a Proper Intraday Trading Strategy
Trading in the stock market is a business and should be handled as such. Like other serious businesses, intraday trading should be done with a good trading plan and strategy. Do not jump into trading without having a clear plan on how you want to execute your trades.
To be a successful intraday trader, you must define your entry and exit strategies, risk management rules, and other important factors to avoid making a trading mistake that would cost you money.
2. Not Performing Technical Analysis
Technical analysis is critical to a successful intraday trading strategy. Successful traders know that studying trends, price and volume charts, and other technical indicators is essential to making profits in the market.
With an excellent technical analysis, you can determine a stock’s trend and how long it goes before changing direction.
3. Not Placing a Stop Loss
There’s no guarantee in trading, no matter how compelling your strategy is. Stop-loss orders limit your losses if a market moves against your position.
Not placing stop-loss orders is a terrible mistake that can get you liquidated, especially in a volatile market.
Read: A Beginner’s Guide to Investing in the Stock Market in 2023
4. Having a Portfolio of Illiquid Stocks
Adding illiquid stocks to your intraday trading portfolio is one of the critical mistakes you should avoid as a trader. Illiquid stocks are hard to sell, and acquiring them means you’d find it difficult to offload them in response to market changes.
It’s always important to buy stocks with high liquidity so that you can sell them quickly at the end of the day’s trading.
5. Trading on Rumors and News without Fact-checking
Successful intraday traders refrain from making the mistake of trading on unverified rumors and news, as the risk is always too high.
While rumors and news can provide valuable insights into market trends and potential opportunities, they can also be misleading or inaccurate. Evaluating the source and credibility of rumors and news before making trading decisions is essential for success.
Furthermore, trading on rumors and news can be unpredictable because market reactions can be swift and volatile. Having a well-defined trading plan and risk management will help you avoid the mistakes inherent in this intraday trading pattern.
6. Not Being Patient Enough to See the Results
As long as you got your analysis right, there’s no need to hurriedly close a trade that’s already going in your direction or slightly against it. The market often goes slightly against your forecasted direction to make a correction. Closing your position at this point due to a lack of patience will not just bring you regrets but losses too.
This is another reason why setting a stop-loss order is essential. With that, you’ll determine the level of risk you’re willing to take.
Read: What Are the Requirements for Becoming a Stock Advisor in the United States?
7. Attaching Emotions to Trading
Attaching emotions to trading results is one of the intraday traders’ top mistakes. Being too attached to profits or losses will cloud your judgment and prevent you from identifying errors in your trades.
If you attach emotions to trading results, you might get too excited in the event of a win and make mistakes in subsequent trades. Or you might get too depressed in the event of a loss and stop trading altogether.
8. Following Tips on Social Media
Social media isn’t the real world; everyone there is an expert in their craft. Following intraday trading tips on social media without doing your analysis is a great mistake. Often, the result always turns out wrong.
While there are trading experts on social media who can give you profitable calls, ensure you do the necessary research and analysis before placing a trade from a social media tip.
9. Over-trading without Caution
One of the biggest mistakes day traders need to correct is overtrading. They take on too many trading positions in a day, which results in increased transaction costs and decreased profits.
Successful traders are selective in their trades and only take positions when there is a high possibility of profits.
10. Chasing Momentum
It can be tempting to chase the momentum of a particular stock or market trend, but you have to understand how risky it can be. Stocks already overbought or oversold may reverse quickly, causing traders chasing the momentum to incur losses.
Read: 7 Investment Ideas for a Tension-free Retirement: How to Retire Rich
Have You Learned the Intraday Trading Mistakes to Avoid?
The trading mistakes in this article might seem trivial, but they can lead traders to incur unimaginable losses. By avoiding them, traders can improve their chances of success and minimize their trading risks. Intraday trading requires excellent skill, discipline, and patience and is only suitable for traders with a solid trading plan.
