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how to not lose money trading
How To Avoid losing a lot of money day trading
The very first step an aspiring trader must take to avoid losing a lot of money trading is to acquire a solid education. The world of Day trading and trading, in general, are littered with getting rich quick promises. But getting rich is not something that happens quickly, and getting rich trading is certainly not an easy task. Much less a quick task to conquer.
The simplicity of it
Day Trading or trading, in general, is very easy to start all one has to do is open a brokerage account. Once that is done then you would deposit some money and click the buy button. And boom you are trading! But this isn’t the proper way to go about such a career, after all, would you just show up at a hospital and grab a scalpel and open someone up without first getting an education? Would you get behind the controls of an airplane and drive it much less land it without a proper pilot’s education?
So what makes one believe they can come into one of the most competitive careers in the world against some of the smartest people in the world and some of the fastest machines in the world and simply click a button without any education? This is a sure-fire way to blow up a trading account faster than you funded it. So, how do you avoid that? What is the answer to, how to not lose money trading? Well, that answer is simple, simple but hard to practice for most traders.
No trading plan
Most traders blow up their trading account because they do not trade with a plan. They simply buy a stock and hope it does what they want it to do. Traders who learn how to formulate a trading plan blow up their accounts by simply holding on past stop-loss. Or much worse, by not having a stop loss altogether!
The right way vs the wrong way
When a trader enters a trade, he or she must have a plan set and stick to that plan. For day traders the most popular way of planning is setting an entry, a stop loss. A stop loss is the price they won’t hold the position past, and sell targets.
What happens to many new-day traders is when the stock hits their pre-determined stop-loss they do not sell their position. They instead hold onto it because they are convinced it will bounce and go back in their favor. But it never does.
The ugly truth
The ugly truth is that this trader is still holding the position. And that same stock has gone from their entry of say $8, down to $6. And before they realize they are down $2 per share. They now look at the chart and think to themselves there is support at $6, I will hold. But then, the unthinkable happens and the support does not hold and It goes down to $5 per share. All of a sudden they are now down $3 per share!!! All the while, their stop loss was $7.50. When we get stubborn or prideful because we do not want to take the loss. The pride will hurt our accounts and it can cause the blow-up of a trading account. Sticking to plans and our stop losses protects us from this and keeps us in the game for the long haul!
In closing the very first thing an aspiring day trader should do is get a quality day trading education. Where they can learn the basics of trading while being patient in the launch of their new career.
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