Trap for Intra Day Traders

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.

Common Mistakes of Traders

Common Mistakes of Traders

Huge risk

Traders sometimes make huge money often by favourable market conditions which purely by chance. But they mistake it for their talent and start investing more money in the attempt to make more profit and get rich quick. It is almost more like a rule that you will start losing on the very first day or the second day when you start investing more money without worrying about risks. Many traders experience this quite often, but unfortunately they forget this valuable lesson of market so soon that they  commit the same mistake over and over again.

They can overcome this mistake only if they realise that share market is not an exception to the general rule that it takes more time and effort to start getting rich as in any other field. Always think about risk before increasing the amount of money you are going to trade, no matter how confident you are about your method. Your method may have given you winning streaks for a very long time that it blindens you about the risk. But you should always remember no method will give profit in all markets continuously. And nobody can predict before hand if the market is going to give profit for your method today.

Being positive is good for other parts of your life. But in Share market it is always advisable to be negative in each and every step, because the profit is of very less importance in share market compared to the huge loss , the market incurs on traders quite often.

No Stoploss trades

Traders often get frustrated when they see the market reverse just after hitting their stop loss. So they try to lower the stop loss level considerably and often get more frustrated when they see the market doing the same even with their new stoploss levels. So they eventually start practising trades without stop loss. Sometimes it may work well for few days which increase confidence level of traders about their approach.

But they will be in there for a shock when they see the market reverse very sharply giving them no time to think where to come out of the trade. So they end up taking a huge loss which will damage their account so badly that they will even be wiped out of their account in some cases. Hence, it is always advisable to have stop loss in each trade. Sometimes even good method will fail continuously. But you should not change your stop loss level. If you are in doubt about your current stop loss level, then do paper trade with new stop loss level without risking real money. This gives you more confidence into your new stop loss level before putting the actual money.

Excessive Trades

This mistake is committed often by new traders. The very first trade of all new comers will mostly be a profitable trade. But that is a trap. This first trade gives them over-confidence because of which they turn blind eye to all loss trades that follow. So they end up taking excess trades that will soon wipe up their account.

Excessive or over trading behaviour is due to lack of discipline. To be a profitalbe trader, one must be a disciplined trader. Disciplined traders just accept their loss and move out of trade for the day. This requires a strong discipline. Because human mind tends to go crazy on seeing loss continuously and start taking irrational risks. One should be aware that mind cannot work effectively in such situations. So it is always better to stop trading in that mind set and leave trading for the day if possible for few more days untill you get your mind totally relaxed.

Greediness to make more profit:

More often than not, we come across traders who are hesitant to square off their positions after the stock gives them decent profit. After seeing such profit so soon, their mind start getting greedy to make more money. So they decide to wait some more time only to see the market that is reversing not only to take away their profits but also give them huge loss if they do not have stop  loss in place.