Introduction to Day Trading Mistakes

Day trading, characterized by the buying and selling of financial instruments within the same trading day, can be both enticing and daunting. Many traders are drawn to the potential for quick profits, yet the pitfalls are numerous. Understanding day trading mistakes is crucial for anyone looking to navigate these turbulent waters. The stakes are high, and the margin for error is slim. By recognizing common errors, traders can develop strategies to mitigate risks and enhance their chances of success.

Mass Psychology in Day Trading

Mass psychology plays a significant role in day trading. The behavior of traders often mirrors that of the crowd, leading to phenomena such as panic selling or euphoric buying. When news breaks—be it positive or negative—traders often react impulsively, driven by fear or greed. This herd mentality can lead to substantial losses, especially for those who do not have a solid trading plan in place.

Warren Buffett famously stated, “Be fearful when others are greedy, and greedy when others are fearful.” This philosophy highlights the importance of maintaining a level head, particularly during volatile market conditions. For example, during the COVID-19 market crash in March 2020, many inexperienced traders sold stocks in a panic, missing out on a subsequent recovery. Those who remained calm and focused on their strategies often reaped the rewards.

Common Day Trading Mistakes

Numerous mistakes can lead to significant losses in day trading. Here are several common pitfalls that traders should be wary of:

1. Lack of a Trading Plan

A well-defined trading plan is essential for success in day trading. Without a plan, traders are more likely to react emotionally to market movements, resulting in rash decisions. According to Benjamin Graham, “The investor’s chief problem—and even his worst enemy—is likely to be himself.” This statement emphasizes the necessity of discipline in trading.

New traders often enter the market without a clear strategy, relying instead on tips from friends or social media. For instance, during the meme stock frenzy surrounding GameStop in early 2021, many traders jumped on the bandwagon without understanding the underlying fundamentals, leading to unpredictable losses.

2. Overtrading

Overtrading is another common mistake among day traders. The allure of quick profits can lead traders to enter and exit positions too frequently, resulting in excessive transaction costs and emotional fatigue. Jim Simons, a renowned quantitative trader, emphasizes the importance of data-driven decisions. Rather than making impulsive trades, traders should focus on high-probability setups that align with their strategies.

For example, a trader might feel compelled to make multiple trades in a single day, believing that more activity equates to higher profits. However, this can lead to diminishing returns and increased losses, especially if trades are made without sufficient analysis.

3. Ignoring Technical Analysis

Technical analysis is a vital tool for day traders, providing insights into price movements and potential market trends. Many traders make the mistake of ignoring technical indicators, relying solely on news or speculation. Philip Fisher, an influential investor, highlighted the importance of understanding market trends and conditions. Utilizing technical analysis can help traders make informed decisions and avoid costly mistakes.

For instance, a trader might overlook key support and resistance levels, leading to ill-timed entries and exits. Understanding chart patterns and indicators can provide valuable information, helping traders navigate market fluctuations more effectively.

4. Emotional Trading

Emotions can cloud judgment and lead to poor decision-making in trading. Cognitive biases, such as confirmation bias and loss aversion, can significantly impact trading behavior. Confirmation bias occurs when traders seek out information that supports their existing beliefs, often ignoring contradictory evidence. Loss aversion, on the other hand, leads traders to hold onto losing positions in the hope of a turnaround, resulting in greater losses.

As Charlie Munger aptly stated, “The psychology of man is the biggest obstacle in investing.” Successful traders must cultivate emotional discipline and the ability to detach from their trades. For instance, if a trader has a significant loss, the urge to recover quickly can lead to further mistakes, perpetuating a cycle of poor trading behavior.

5. Lack of Risk Management

Effective risk management is critical in day trading. Many traders neglect to set stop-loss orders or fail to define their risk tolerance, exposing themselves to significant losses. John Templeton once remarked, “The four most dangerous words in investing are: ‘This time it’s different.’” This quote underscores the importance of adhering to risk management principles, regardless of market conditions.

A trader who risks too much on a single trade may find themselves in a precarious position. For example, if a trader allocates a large percentage of their capital to one trade without a stop-loss, a sudden market shift could lead to devastating losses. Establishing clear risk parameters and adhering to them is essential for long-term success.

6. Failing to Adapt

Market conditions are not static; they can change rapidly due to various factors. Traders must be willing to adapt their strategies based on current market conditions. George Soros, known for his ability to anticipate market shifts, emphasizes the importance of flexibility in trading. A rigid approach may lead to missed opportunities and increased losses.

For instance, a trader who relies solely on a specific strategy during a high-volatility period may struggle to adapt when market dynamics change. Being open to adjusting one’s trading plan and strategies can help traders navigate unforeseen challenges more effectively.

7. Chasing Losses

Chasing losses is a dangerous habit that many day traders fall into. After experiencing a loss, traders may feel compelled to make risky trades in an attempt to recover quickly. This behavior often leads to impulsive decisions and further losses. As Jesse Livermore wisely noted, “There is nothing new on Wall Street. There can’t be, because speculation is as old as the hills.” This suggests that traders should understand the cyclical nature of markets and approach them with patience.

Instead of attempting to chase losses, traders should focus on their overall strategy and look for opportunities that align with their trading plan. A disciplined approach helps maintain a healthy mindset and reduces the likelihood of emotional decision-making.

8. Overconfidence

Overconfidence can be detrimental to day traders. After a series of successful trades, traders may develop an inflated sense of their abilities, leading them to take on excessive risks. According to Ray Dalio, “The best investors are the ones who are able to learn from their mistakes.” Acknowledging one’s limitations and being willing to learn is critical for long-term success.

For example, a trader who has recently experienced consecutive winning trades may become overconfident and ignore their established risk management practices. This can result in reckless trading decisions that jeopardize their capital.

9. Neglecting Continuous Learning

The financial markets are constantly evolving, and traders must prioritize continuous learning. Failing to stay updated on market trends, news, and new trading strategies can hinder a trader’s success. Paul Tudor Jones II emphasizes the importance of adapting to changing market conditions, stating, “You have to be willing to adapt.”

Traders should invest time in educating themselves through books, webinars, and mentorship opportunities. This commitment to learning can provide valuable tools for navigating the complexities of day trading and avoiding common mistakes.

Conclusion: Avoiding Day Trading Mistakes

In conclusion, understanding day trading mistakes is essential for anyone venturing into this fast-paced arena. By recognizing the influence of mass psychology, technical analysis, and cognitive biases, traders can develop strategies to mitigate risks and enhance their chances of success. The wisdom of experts like Warren Buffett, Peter Lynch, and Jesse Livermore serves as a reminder of the importance of discipline, emotional control, and continuous learning in the pursuit of profitable trading.

Ultimately, the key to thriving in day trading lies in maintaining a well-defined plan, managing risks effectively, and adapting to market conditions. By avoiding common pitfalls and embracing a disciplined approach, traders can increase their likelihood of achieving their financial goals and navigating the challenges of the market with confidence.

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According to the Market Update from September 11, 2022, it was projected that if the markets followed a certain path, a test of the 9,900 to 10,500 range would potentially mark a bottom. This projection was based on the assumption that the markets would follow a pattern similar to that seen in 1973-74. If this were to occur, it would present a potentially significant opportunity for tactical investors to enter the market.

It is important to note that this projection was based on speculation and was not a guarantee of future market performance. It is not uncommon for markets to experience fluctuations and volatility, and it is important for investors to carefully research and evaluate any potential investment opportunities.

In November of 2022, the Nasdaq experienced two strong rallies, which may have set the stage for a test of the 12,300 to 12,600 range. If the Nasdaq is able to close at or above 12,600, it may pave the way for the market to reach or surpass its August highs. However, it is important to note that the future performance of the markets is always uncertain and that it is important for investors to carefully consider the risks and potential outcomes of any investment decisions.

In the August 27, 2022 Market Update, it was noted that the Dow had lost a relatively small amount of value, shedding less than 700 points since the previous update. At that time, the Dow was trading around 32,800, and it was suggested that risk-takers might consider opening long positions in the market.

In the August 2, 2022 Market Update, it was stated that the markets were entering a corrective phase and that the SPX had reached short-term targets. It was also noted that former support points had turned into resistance, which could potentially turn into zones of support again on a short-term basis. It was suggested that the market might experience a pullback to the range of 3960 to 4020, with a possibility of overshooting as low as 3870.

In the September 11, 2022 Market Update, it was reported that the markets had traded as low as 3,886, falling below the low end of the suggested range by roughly 70 points. However, it was also noted that the markets were likely to continue rallying as the selling pressure was easing, bearish readings were high, the masses were uncertain, and the dollar was close to reaching a short-term top.

In the same update, it was suggested that risk-takers should continue holding their positions until the Dow tests the range of 33,600 to 34,000 and the Nasdaq trades to 13,500. At that point, it was suggested that all higher-risk positions should be closed, though it was noted that investors could modify this trade to fit their own trading style.

RGLD is a gold stock that has proven to be a good investment opportunity even during market crashes. By simply buying and holding this stock, an investor could have seen significant gains. In fact, the profits from RGLD began to surge after 2011, which was when the Federal Reserve started to print more money. This shows that the recovery period between market booms and busts is now about 5 times faster than it was in 2009.

However, using a more advanced strategy such as analyzing long-term charts (monthly charts) can lead to even greater returns. By using these charts to determine when to buy and sell, an investor could potentially double their returns. For example, an investor could use monthly charts to enter and exit the market while the trend is still positive. Experienced traders could take this strategy a step further by using weekly charts to make more frequent trades within the overall trend determined by the monthly chart. This strategy involves selling when the stock is trading in the overbought range and repurchasing when it moves into the oversold range. It is important to note that this advanced strategy should only be attempted by traders with some knowledge of technical analysis.

Overall, the lesson here is that by remaining calm and not giving in to fear, an investor can achieve outstanding gains over the long term. History has shown that this is possible, even during times of market volatility. It is especially important to be aware of the narratives being created by top players in the market, as they may try to prematurely create the illusion that the bull market is dead forever. These players have significant financial power, and they may continue to manipulate the market in this way with increasing frequency. It is crucial for investors to prepare themselves psychologically for these tactics in order to avoid potential losses.

It is important to note that the information provided in the statement is purely speculative and not based on factual evidence. The statement suggests that some large players in the market intentionally create disasters or crashes in order to profit from the fear and panic of others. It is not clear how these players would be able to consistently create or predict market crashes, and it is not advisable to base investment decisions on speculation or conjecture.

It is never a good idea to blindly follow the strategies of others or to base investment decisions on speculation or conjecture. It is important to carefully research and evaluate any investment decisions and to consider the risks and potential outcomes. It is also important to diversify one’s investment portfolio and to seek professional financial advice before making any major investment decisions.

While it is true that the short-term outlook for the market may not always be favorable, it is important to consider the long-term potential for growth and to look for opportunities to invest in strong, reputable companies. It is possible that 2023 may present some challenges for investors, but it may also offer some fantastic opportunities for those who are astute and tactical in their approach. It is important to carefully consider the risks and potential outcomes of any investment and to make informed decisions based on thorough research and analysis.

Trending Stocks 2020: Before we get into the meat of the article, let’s look at some of the statements we made over the past few weeks. These comments are being extracted from the market update service.

Put your personal feelings aside and understand this simple fact. No bull market has ever ended on a note of fear; it has always ended on a note of extreme joy. Market Update Jan 17, 2020

Since the inception of mass media, the idea has been to stampede the crowd or create a feeling of euphoria and both conditions are deadly when it comes to investing. However, the new ploy is to keep the masses agitated constantly or uncertain. Why would they do this? When someone is uncertain it takes longer for them to cling to a given viewpoint; they keep jumping from one camp to another, and that is one of the reasons why this bull market has lasted so long.

A sharp pullback is still an outcome we view through a very bullish lens. The ideal setup calls for the Dow to trade to the 28,800 to 29,000 ranges, with a possible overshoot to 29,300. After that, a nice sharp pullback would set the bedrock for a surge to and possibly well past 30k.  Market Update Dec 29, 2019

The best time to buy is when the masses are in a state of disarray, and this usually occurs when it looks like the markets are crashing. The masses are hardwired to view strong pullbacks as the start of a new crash, but most pullbacks are nothing but resting points; the markets use these stops to build up energy for the next upward leg.  Tactical Investors should hope that the market’s pullback strongly, for it provides them with a lovely opportunity to open long positions at a discount.

It is also one of the reasons why in general the small player is still sitting on the sidelines.  They still don’t know if they should jump in and buy or if shorting the markets is the right course of action; the longer they remain uncertain, the higher this market will trend. Market update Jan 7, 2020

One can immediately spot that the media takes delight in blowing anything out of proportion as it comes down to eyeballs and dollars. The more bombastic the headline, the more attention it will get, even if this attention is for a few minutes. In the end, we don’t have news today what we have is weaponized gossip.

Stock Trends and The Coronavirus Factor

The Coronavirus issue is going to be blown out of all proportions and it will be made to look like the mother of all pandemics. In fact, we are seeing individuals that are not qualified to make projections on the rate this virus will spread, stating that millions upon millions will be affected.

Now people are being checked with thermometers to see if their temp is above normal and an above-normal temperature has now become the litmus test for the Coronavirus; voodoo science at its best. This is one of the most retarded medical tests of all time, but no one seems to notice; a real-life depiction of “Pluto’s Allegory of the cave”.

CDC estimates that the burden of illness during the 2018–2019 season included an estimated 35.5 million people getting sick with influenza, 16.5 million people going to a health care provider for their illness, 490,600 hospitalizations, and 34,200 deaths from influenza (Table 1). The number of influenza-associated illnesses that occurred last season was similar to the estimated number of influenza-associated illnesses during the 2012–2013 influenza season when an estimated 34 million people had symptomatic influenza illness6. http://bit.ly/2UMJjMG

In comparison to the flu virus, the Coronavirus has caused a minimal amount of damage yet it has received 100X more coverage than the flu virus, which resulted in 34.200 deaths (and only US data is being used).

Worldwide, tobacco use causes more than 7 million deaths per year.2 If the pattern of smoking all over the globe doesn’t change, more than 8 million people a year will die from diseases related to tobacco use by 2030. http://bit.ly/2wcEl1s

Many of the masks that individuals are wearing are not that useful against viruses and even the masks that might provide protection need to be worn correctly. http://bit.ly/2HklQKB.  Other experts state that masks are useless as the virus is spread through the eyes. http://bit.ly/2SCjfkw

Stock Trends 2020 Conclusion

There is a 75% chance that the markets will experience at least one strong pullback this year, it would be foolhardy to attempt to predict the exact date though it would be ideal if this event took place during the  1^st quarter.  Market Update Feb 20, 2020

This correction is taking place in the ideal timeline so it when it ends it will lead to a spectacular rally, those waiting for the crosswinds to subside will (as always) be left holding a can with rotting worms.

 The masses beg for an opportunity to buy stocks at a lower price when that opportunity arises the masses panic stating that they need to wait for things to get better before jumping in again. And so they wait, and when things finally get better, they notice that the price of everything they wanted to buy is higher than it was before and so starts the next stage of sorrow.

Notice anything odd above in terms of market sentiment. The markets have sold off, so one would expect bearish readings to soar north off 55. Instead, while they have risen, they are only at 41. What’s very interesting is that the number of individuals in the neutral camp is holding steady at 33 and this confirms that the masses are still uncertain, which means that the rebound from this correction will push the market to new highs.

This market has yet to experience the “feeding frenzy stage,” and we expect the action to be twice as powerful as the current downward action gripping the markets. We expect the Dow to experience upward moves ranging from 500 to 1000 points several times before the market even come close to hitting a massive long term top.  The needle on the anxiety gauge has swept deep into the hysteria zone extremely rapidly indicating the crowd is one stop from moving into a zone that until now, we did not create “the madness zone”. If the gauge moves into this zone, then we could end up having an event that will come to be known as the “father of all buying events.” 

Courtesy of Tactical Investor

7 Hot Stocks for 2020’s Big Trends

With 2019 coming to a close, it’s both a time to reflect and to ponder the future of hot stocks for 2020. If I had to summarize the markets this year in one word, it’d be China. Through much back-and-forth rhetoric, the U.S.-China trade war dominated the investment and political narrative. Unfortunately, based on recent presidential threats, this conflict could be with us for a while.

But if we finally get a substantive trade deal signed, one of the biggest catalysts for hot stocks for 2020 will be technology. Over the years, we’ve seen small upstarts disrupt long established markets. For the next few years, I’m going to go out on a limb and suggest that the old dogs will play new tricks. Specifically, the 5G rollout offers giant, well-resourced organizations a second wind.

Of course, forecasting the most profitable hot stocks for 2020 is a gargantuan task. Still, I think a reliable factor that you can trust is demographics. Although most countries undergo serious social change, arguably few nations are subject to dramatic paradigm shifts like the U.S. Particularly, the aging of two key demographic groups may offer substantial returns for the patient investor.

Lastly, evolving social mores and rising awareness will most likely impart political transitions. And that will invariably impact industries that depend on favorable public sentiment to catalyze growth. So, without further ado, here are my picks for seven hot stocks for 2020 to consider Full Story

20 of the Top Stocks to Buy in 2020

Before we get to the stocks, let’s acknowledge that these lists are tough.

Choosing the best stocks to buy today depends so much on your individual financial situation. To get a good read on where you stand, read our How to Invest Guide. It walks you through topics like establishing an emergency fund, asset allocation, when it makes sense to buy stocks, etc.

Now, onto the 20 stock ideas. Here’s the entire list, followed by the summary buy thesis for each one.

The Vanguard Total Stock Market ETF (NYSEMKT:VTI)
The Vanguard Total International Stock ETF (NASDAQ:VXUS)
Amazon.com (NASDAQ:AMZN)
Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL)
Facebook (NASDAQ:FB)
Intuitive Surgical (NASDAQ:ISRG)
Axon Enterprises (NASDAQ:AAXN)
AT&T (NYSE:T)
Verizon Communications (NYSE:VZ)
Ford Motor Company (NYSE:F)
General Motors Company (NYSE:GM)
ONEOK (NYSE:OKE)
TerraForm Power (NASDAQ:TERP)
Brookfield Infrastructure Partners L.P. (NYSE:BIP)
CareTrust REIT (NASDAQ:CTRE)
iRobot (NASDAQ:IRBT)
lululemon athletica (NASDAQ:LULU)
Wayfair (NYSE:W)
Netflix (NASDAQ:NFLX)
Constellation Brands (NYSE:STZ)
The first two are a bit of a cheat because they’re actually exchange-traded funds (ETFs). ETFs allow you broad exposure to a basket of stocks, and these two are some of the best low-cost index funds around:

US Stocks: The Vanguard Total Stock Market ETF
Foreign Stocks: The Vanguard Total International Stock ETF
The first ETF (VTI) gives you exposure to basically the entire U.S. stock market by investing in over 4,000 stocks. Full Story

The Dow 30 stocks should be signaling all is not well, but?

We have three more stocks for a total of 18 that are now trading in the oversold to extremely oversold ranges since the last analysis. It, therefore, seems highly unlikely that the markets will crash under such conditions. The best plan, therefore, should be to switch the TV off as listening to the talking heads can only be viewed as a healthy thing if you like taking a hammer to your head. 

Listen to music, watch a movie, read a book, and sip on your favorite drink. For when it is all said and done, which by the way it never is, for if this were true, the talking heads would keep quiet and focus on the phrase “silence is golden”.  I digress, so when it is all said and done, these talking heads bring nothing new to the table; their best gift is to regurgitate verbal vomit and try to market it as something new.

Mass Psychology clearly advocates that stock market crashes are nothing but long term buying opportunities.  Pull up a long term chart and you will be forced to arrive at the same conclusion.  The Big player’s game strategy is to get individuals to focus on words such as bear market, crash, and end of the world, etc.; in doing so, the crowd focuses on the tree and forgets the forest.

Courtesy of Tactical Investor

Random Views on the Dow 30 stocks

Dow 30 Stocks: 2019 Comparative Performances And Prospects By Grant Henning, Ph.D.

Summary
2019 year-to-date, share-price-percentage gains for all 30 DJIA stocks.
Comparative 2019 dividend offerings for all 30 DJIA stocks.
Comparative 52-week momentum by relative strength, bounce/lag momentum, and regression residual methodologies.
Ranked summative prospects for Dow 30 stocks.
Looking for a portfolio of ideas like this one? Members of Value & Momentum Breakouts get exclusive access to our model portfolio. Start your free trial today »
This is a special contribution article by Prof. Grant Henning based on his published research on the BLM technical theory. The model and comments are expressly based on his own proprietary methodology and forecasts.
Comparative Analysis of Dow 30 Stocks
There is generally high interest in the performances of the 30 large-cap stocks comprising the Dow Jones Industrial Average. This is because these stocks are perceived as low risk, highly liquid, reliable holdings for long-term investors, pension funds, endowments, and hedge funds. Added to their promise of steady, low-volatile growth, is the prospect of dependable dividends. These benefits make these stocks ideal holdings for large-scale, low-risk investors.
Aggressive individual stock traders often shy away from these stocks because of the perception that such stocks are unlikely to produce the same high levels of growth that are available through some more volatile small-cap and micro-cap stocks. However, it will appear below that this perception is not always accurate. Clearly, some Dow 30 stocks do outperform many smaller cap stocks on the other major indices. Full Story

Dow Jones Stocks To Buy And Watch In April 2019

After a blistering two-month start to 2019, the Dow Jones industrials slowed its pace in March. But there are clear winners — and losers — at the end of the first quarter of 2019. Among the Dow Jones stocks, a number of members are in or near buy zones, including blue chip stock Apple (AAPL) and chip giant Intel (INTC).
Boeing (BA) was the top-performing Dow Jones stock through February with a scorching return of over 36%. But Boeing stock gave up its leadership mantle when it plunged over 13% in March, in the wake of the Ethiopian airplane crash.
Cisco Systems (CSCO), International Business Machines (IBM), United Technologies (UTX) and Apple are the top four performers through the first quarter.
On the downside, the bottom three stocks through the first quarter are Walgreen Boots Alliance (WBA), Pfizer (PFE) and Coca Cola (KO). Since the start of the year, the three Dow Jones stocks are down 7.4%, 2.7% and 1%, respectively.
Year to date, the Dow Jones industrials have gained 11% through March after trading mostly unchanged for the month. The tech-heavy Nasdaq composite and S&P 500 index are up 16.5% and 13.1% through the March 29 close, respectively. Full Story

The 5 Best Dow Jones Stocks to Buy Now

Despite all the pundit noise and hate, the Dow Jones Industrial Average is still a wonderful place to find great stocks and big-time dividends. The thirty Dow Jones stocks are still powerhouses in their respective fields and feature enviable moats, large cash flows and big-time profits. With the Dow 30, you really are getting the top dogs of America’s economic landscape.
There’s a reason why nearly $20.2 billion still sits in the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA), and that’s because the index remains a pretty solid collection of blue-chip stocks.
But not all thirty stocks in the Dow Jones index are big buys at the current moment. Some — be glad you didn’t buy General Electric Company (NYSE:GE) when it was still in the Dow 30 — are actually lousy to purchase in today’s market.
With that in mind, here are five of the best Dow Jones stocks to buy right now! Full Story