Beginners Luck When Day Trading Penny Stocks

In general the worst outcome for a new trader is to be successful right when you start day trading penny stocks. The big reason for this is that it leads to extreme overconfidence. A new trader that makes money right when they begin trading may think that they actually know what they are doing when in reality they do not. This will probably cause them to increase their position size and take on more risk too early. When the market changes, and I guarantee it will, they will end up losing all their profits and potentially losing their whole account.

Confusing luck with skill is very common for new traders. Outside of pure luck, the biggest reason for a new traders initial success usually has something to do with their current skills meshing well with the current market environment. Since new traders usually don’t have any real understanding of the market, I am not referring to actual day trading skills like knowing when to buy and sell, etc., but instead I am talking about a new traders psychological make up allowing them to benefit for a limited period of time. What the market is doing at the current time that a trader gets involved, plays a big part in their success and this can many times be mistaken for innate trading knowledge when it’s nothing more than a case of being in the right place at the right time.

A great example is a person that get involved in the market before a some sort of bubble occurs. For instance take a person that worked in the energy industry prior to 2013. Maybe they decided to get involved in trading because some of their coworkers were doing the same. The energy market experienced a large bubble with the price of oil rising from $60 to $110 per barrel during this time. This sent the price of oil stocks sky rocketing in between 2014 and mid 2015. This person probably would have instantly started to make money from the beginning and they would probably think they were a genius. Instead there is a saying a rising tide floats all boats. This is very true with regards to the stock market because 3 out of 4 stocks follow the overall market. The problem is after the oil bubble burst in 2015, the price of oil collapsed 60% sending almost all oil stocks down 50-90%, and resulting in many bankruptcy’s. In circumstances like this is not hard to make money but instead to keep what you make. If a person has no plan of when to sell or cover their traders, then it really doesn’t matter whether they make money because when the market turns they will end up being hit hard.

Believe it or not, it’s actually better to have limited success when starting out day trading penny stocks, or better yet spending enough time developing or learning a trading system so that when you actually begin to trade with real money, you already know what you are doing. Not many people end up doing this unfortunately. Instead they want to jump into the market as soon as possible and begin making money. Little do they realize that this is a very bad idea. It doesn’t make sense to put real money on the line until a person has studied the market and has a detailed trading plan which dictates how to make trading
decisions.

Professional traders earn a living capitalizing off of the poor decisions and lack of experience that nearly every knew trader faces when they get started and want to  day trade penny stocks. The market mechanism in shorter term trading only works when one person loses money at the expense of another person. Professional traders have proven that they know what they are doing by continuing to trade. New traders need to realize outside of just getting luck, they are not going to beat an experienced trader at their own game. This is why it is advisable to realize that the get rich quick or I have to make a money immediately mindset, will prevent your success in the markets.

Instead go into the market with an open mind and accept the fact that if you can break even or not lose much money in the beginning you are FAR ahead of nearly all other new traders.

Learn a trading system (or develop one) which you are sure has a statistical edge. Until you have this you are essentially just throwing darts. You may get lucky and make some money right off the bat, but I can assure you your time as a trader will end quickly if you don’t figure out how the trading game must be played.

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