Trap for Intra Day Traders:
Intra Day Traders should be aware of the trap trades that they will have to encounter quite frequently that wipes away their account in no time. Take a look at this graph. Usually intra day traders enter during breakouts. But here in this graph you can see a break out in the long direction at 10.45 and without making any move further enough to make a profit, it reverses and breaks down in the short side at around 11.25. Usually traders who entered long by any method must have suffered loss and squared off their long position and started entering in short side at 11.25 downside breakout.
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Even here, it does not go down enough to make profit by any method and reverse again to break up again in the long direction at around 13.05. Almost all traders would have booked loss in the first two trades and entered the third trade in the long direction at 13.05. The stock again without moving enough to book profit reverses and breaks down at the closing time of the market. So the traders who entered at every breakout in this method would have made a huge loss for the day. These kinds of trades are the biggest traps for any intra day traders.
How to protect ourselves from such traps?
The answer is very simple. Don’t enter into the same stock after suffering two loss trades for the day. If possible don’t enter into the same stock more than once for the day. But during the days market is good, you can actually make profit during your second entry in the opposite direction after having suffered loss in the first direction in one direction. So you can give it another shot after first loss but never more than that. This is where your trading discipline should wake you up before you fall into the trap of excessive trades.