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Day Trading - Five Reasons Why New Traders Fail

Many people think that day trading is the same as gambling where you can win up to $1 million in a single day, and you can also lose up to $1 million in a single day. This is true, to an extent. For the novice day trader, it might be better to describe day trading as gambling, if gambling was a form of gambling that did not require a high sense of humor.

Many people imagine a gambler standing outside a casino, watching the action and making bets about who will win. Those who trade on the market do not stand outside any casinos. It is possible to stand outside any casino with a little bit of effort, but that would be very difficult and probably illegal.

For the day trader, you may have to take a position in the market and do something that is more akin to betting than trading. He doesn't risk anything and expects to win, but of course, if he wins, he stands to gain quite a bit. The average win in day trading is less than $100.

Some may ask, "What does it matter if I win $100 or lose $100?" The answer is simple: It matters a great deal if you win $100 or lose $100. The amount of risk you take is a reflection of how much you value winning over losing.

The novice trader must ask himself, "What's in it for me?" In other words, does the risk I am taking help me achieve my goal of winning $1 million? I have listed several reasons why inexperienced day traders fail below, but I would like to list another five reasons that are detrimental to our success.

1. Trading costs are not covered by insurance as gambling is not gambling. Even if trading costs were covered, there is little someone can do to lower their trading costs.

2. Trade with what you know. If you trade with only information from your broker and your family then you may as well join the circus. If you trade with your gut instinct then you have more control over your trading. Trading is very hard to predict, but if you trade with what you know and your gut instinct then you stand a much better chance of winning.

3. Limit your trading. Most professional traders don't keep losses to less than 5% of their accounts. If you don't have the discipline to trade within your means then you will quickly become a losing trader.

4. Limit your trading to safe and simple stocks. If you are trading options then it's even more dangerous. This risk can be reduced by only trading with those stocks that are commonly offered by your stockbroker.

5. Have realistic trading goals. Many people like to take huge risks and think they will make big money, but I have yet to find a successful trader who took small risks. Successful traders focus on the now and know that they must reduce their risks as they move forward.

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