I know I always preach about risk management being the one thing you have control over and how important it is for a trader to have a good strategy and a solid risk management plan when trading. But let me tell you a story about a young man who didn’t start with a demo account. Instead, he decided to start with $150,000 in real money. This brand-new trader thought he had the market in the palm of his hand, and whatever he touched was going to bring him big profits.
Over a couple of years, he had some decent wins but also a lot of losing trades. He made a few common errors for new traders, including not having a solid trading strategy or a risk management plan in place that he stuck to consistently. Another mistake he made while day trading was holding onto losing trades, crossing his fingers that they would turn around before the market closed. If they didn’t, he would continue to hold them overnight and beyond, waiting for a miracle that rarely came.
In most cases, he ended up with even deeper losses, sometimes holding the stock until it had lost all its value or was worth just pennies, or the company went out of business. Over this two-year period, do you think he became a millionaire or went broke? Well, let me answer that for you. This very naive young man, who thought he had the stock market wrapped around his finger, took that large account and whittled it down to just over $2,000 before figuring things out and rebuilding over a lifetime.
That foolish young man was me, almost forty years ago. So, if you wonder why I preach about having a solid plan with a solid risk management strategy, it’s because I took a ton of my money and gave it all away. I did it the hard way, and I would prefer you learn from my mistakes and avoid repeating my nightmare as a brand-new trader.
It costs you nothing to set up a demo account with most brokerage firms. Take the time to understand the markets and pick one or maybe two strategies because you can’t do them all. You’re going to have winners and losers in day trading. No one, even the best, wins them all. Control your losses with a solid risk management plan that you use for every trade, or your run will be short-lived at best.
I get emails all the time telling me the same stories of despair and desperation. If the money you invest is money you can’t afford to lose, you shouldn’t be investing it and taking the risk. Take the time to study, understand it, and use a demo account for six months or a year if that’s what it takes to develop a solid plan and save yourself from the pain of blowing up your account.
I don’t sell a class or make money from others who read this blog. I’m here to share my experiences over a lifetime to help you survive and hopefully prosper in the world of day trading. I have absolutely nothing to gain from sharing this with you. Take my advice and take the time to do it right. You will save yourself a lot of pain and losses by following my suggestions. Hell, it’s free advice, right? You can ignore it and do it your way, but don’t cry when I tell you, “I told you so.”
Have a blessed and peaceful rest of your week, traders!