A Great place to begin when starting a discussion on the risk management side of day trading is to talk about some common pitfalls new and less successful traders encounter.
Greenhorn daytraders are not usually expected to be profitable at the beggingin of their careers, there is, after all, a learning curve that is to be expected. This however, does not suggest that you are expected to lose a substantial amount of money in a very short period of time either! When novice traders start off with substantial losses it usally can be traced back to some of the following reasons.
RECKLESS TRADING – IS WHEN A TRADER LOSES ALL STRUCTURE IN AN ATTEMPT TO MAKE IT ALL BACK AT ONCE, USUALLY SLIPPING INTO A BIGGER HOLE.
FREEZE TRADING – IS WHEN A TRADER REFUSES TO TAKE A LOSS, BYPASSING STOPS AND LOSING MORE MONEY.
PSYCHOLOGY – THE THOUGHT OF TAKING HOME A NEGATIVE P&L DAILY TAKES ITS TOLL ON A TRADER AND ADVERSELY AFFECTS THEIR TRADING.
IS THIS CAREER FOR ME? – TRADERS BEGIN TO QUESTION THEIR ABILITY TO TRADE AND THUS LOSE THEIR DRIVE AND DESIRE TO SUCCEED.