At first, day trading looks like it should be easy. Make a little profit and repeat the process tomorrow. Unfortunately, many dangers are lurking in the markets for day traders and new day traders are unaware of these dangers and how they can drain their trading account.
You need to highlight that new day traders should avoid these hidden dangers.
Your Technology
Technology is an essential thing in trading. On the other hand, errors can happen to anyone. How if your computer crashes? The internet connection goes down? Your power goes out? Broker’s servers crash and you get disconnected from your broker?
There is no way for you to get out of a losing trade quickly unless your internet works well. In this case, you need a stop-loss order in place on every trade.
Your broker’s phone number should be programmed into a landline phone and a cell phone, so you can contact them quickly if needed.
If your internet goes down. It may also be helpful to have a mobile version of your broker’s trading platform on your smartphone. Your mobile internet might be operational if your computer crashes allowing you to manage your trades.
Order Types
As a day trader, your profits and losses come from the orders you place. No matter what the price is doing, you should know your order types for getting in and out, both at a set price, called a limit order, and if you need to get in or out in a hurry, a market order.
If you don’t know your orders types, your trading will be slow and clumsy. Trading mistakes can happen, but compounding the mistakes with additional order-related mistakes is a recipe for disaster. Know your order types before you start trading.
Hidden Dangers in Day Trading
As a new trader, another hidden danger is yourself. When starting out, day trading will be stressful, possibly infuriating, and will tax your mind in ways you didn’t think it could.
As much as possible, go through all the steps above to help minimize damage if you react negatively to the trading situation that may arise. Also, look critically at your personality.
Final Word on Knowing Just Enough to be Dangerous
To help minimize the danger of losing money, implement a per-trade and per-day risk management strategy. Test and practice your strategy in diverse market conditions before using it with real capital.
Don’t take your broker for granted, as sending them money is one of the biggest trades you’ll ever make. Technology is great, but it has drawbacks, too. Have redundant systems in place in case you get disconnected from your broker, and always have stop-loss orders on any open trade.
Know your order types so well that you don’t need to think about them when stress levels are elevated.
