When people enter the field of day trading, they often have a wrong view of the process that makes one a profitable day trader. In order avoid frequent pitfalls, they below article covers common trading mistakes traders often make in their early stage.

1. JUDGE TRADES BASED ON PNL

Often, traders look at how much they gained or lost and judge their trading based on those numbers - a loss trade represents bad trading whereas a profit trade is evidence for skillful trading. However, that is not necessarily true – a profitable trade is not automatically a good trade and a loss trade is not automatically a bad trade.

During the learning process, a trader defines rules, develops a strategy and performs trade reviews until a profitable approach has been derived. A good trade follows all defined rules that matches the elaborated trading strategy – the financial result does not play a role and rather illustrates a distraction in objectively following the rules. I that sense, even a loss trade that followed all rules can be considered a good trade. Ultimately, a series of good trades will almost certainly lead to positive trading performance. A positive PnL illustrates a side effect of strictly following the day trading rules.

2. FOCUS ON TOO MANY SETUPS

Often, traders believe more setups means more trading opportunities which results in more profits. That equation, however, can enhance overtrading and takes away the focus since one is only focusing on finding setups instead of seeing the big picture.

A consistently profitable day trader specialises on a few setups and becomes an expert on those few setups. Bruce Lee was once quoted: “I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times.” The same can be transferred to day trading and setups in that sense.

Following that sniper approach, there is less over stimulation and the mind can perform on a more relaxed level. It gives space to develop an expertise on a few setups. Experience will show that even those few setups can further be distinguished into strong and weak ones depending on the scenario which, ultimately, grows expertise.

3. NO TRADE REVIEWS

Often, traders rely on their memory when developing their trading approach. Regularly, however, trades are evaluated subjectively based on the current impression and memory vanishes over time. Tracking the own trades and respective behaviour creates actual evidence and helps to strength and weaknesses objectively. Also, it creates a lasting journal that can be used in the future to check behaviour in the past.

Without measurement there is no control and the origin of a positive or negative performance cannot be determined in the long run. Trade reviews simplify identifying cause-effect relations and eliminates the human factor. They allow measuring performance and provide a base for reflection on the own behaviour to develop a profitable approach. It provides a transparent picture of the own trading actions and delivers exact guidance of what needs to be adjusted in order to improve the result.

4. SWITCH APPROACH TOO EARLY

Often, traders switch their approach after a few attempts when it is not working as it was expected to be. A trading approach needs to be developed until it, ultimately, matches the individual preferences and personality. That process needs time and the ability to follow through. By switching after a few disappointments the trader takes the opportunity to proceed away - instead of reaching the next level, switching the approach let one start at level one again.

Instead of switching the approach, a more reasonable action would be doing trade reviews, reflecting on the own behaviour, analysing trades and rather adjusting the current approach than considering an entirely new one. Resilience is key in this journey.

5. NEGLECT TRADING PSYCHOLOGY

Often, traders focus on learning their trading approach in theory and practice. Analysing the markets, drawing lines and rectangles as well as finding setups seems to be the more interesting task than learning about the human brain and reflecting on the own behaviour. However, both is closely interconnected and needs to be understood as a unit. Trading psychology plays a crucial role in day trading and once a profitable approach has been developed it become the key learning field in order to become a consistently profitable trader.

Without working on the mental parts there is no consistent profitability. Elements of trading psychology must be considered from there very beginning. It does include observing and reviewing the own behaviour but also the general functionality of the human brain in demanding situations. In that context, it may also help to read books about the actual day trading process as well as literature about habits and stress management.