How To Avoid Blowing Up A Trading Account
The very first step an aspiring trader should consider taking to avoid blowing up
their trading account aka losing all the money in their trading account is to
acquire a solid day trading education. The world of Day trading and trading, in
general, are littered with getting rich quick promises and dreams but getting rich
is not something that happens quickly, and getting rich trading is certainly not an
easy task much less a quick task to conquer.
Day Trading or trading, in general, is very easy to start all one has to do is open a
brokerage account, deposit some money and click the buy button of their favorite
tiker but this isn’t the proper way to go about such a career, after all, would you
just show up at a hospital and grab a scalpel and open someone up without first
getting an education? Would you get behind the controls of an airplane and drive
it much less land it without a proper pilot’s education?
So what makes one believe they can come into one of the most competitive careers in the world against some of the smartest people in the world and some of the fastest machines in the world and simply click a button without any education? This is a sure-fire way to blow up a trading account faster than you funded it. So, how do you avoid that? Well, that answer to this while simple is hard to practice for most traders.
Most traders blow up their trading account because they do not trade with a plan
they simply buy a stock and hope it does what they want it to do. Traders who
learn how to formulate a trading plan blow up their accounts by simply holding on
past a stop-loss or not having a stop loss altogether!
When a trader enters a trade he or she must have a plan set and stick to that plan. For day traders the most popular way of planning is setting an entry, a stop loss (the price they won’t hold the position past), and sell targets.
What happens to many traders especially newer day traders is when the stock
hits their pre-determined stop-loss they do not sell their position and hold onto it
because they are absolutely convinced it will bounce and go back in their favor.
All the while the stock has gone from their entry of say $8 down to $6 and now
they are down $2 per share. They now look at the chart and think to themselves
there is support at $6 but then the support does not hold and It goes down to $5
per share and now they are down $3 per share!!! All the while they stop loss was
When we get stubborn or prideful because we do not want to take the loss this
hurts our accounts and it can cause the blow-up of a trading account. Sticking to
plans and to our stop losses protects us from this and keeps us in the game for
the long haul! In closing the very first thing an aspiring day trader should do is get
a quality day trading education where they can learn the basics of trading while
being patient in the launch of their new career.