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  • Writer's pictureThe Unshaken Female

The Five Biggest Mistakes to Avoid When Learning How to Day Trade

Updated: May 25

Entering the world of trading on your own is a courageous and admirable move to take!

Understanding the stock market without a background in finance requires passion, patience, and practice.

You can't force someone to have an interest in what appears to be one of the riskiest and most stressful jobs involving their own money!

Ok, so you've made it here, which means you probably already have an underlying interest and/or have already started investing and/or day trading! Guess what? That makes both of us :)

I started day trading in early 2023 after the banking crisis in March, where I decided to move my money out of an auto-investing app and into E*Trade where it would be safe in one place.

From 2017 to 2022 I was allowing a robo-advisor to auto-invest my contributions into a diversified pie of just 5 ETFs covering all parts of the market.

To me, this was great since I was terrible at both saving, and keeping my money invested for the long term.

Once I began doing my research on ETFs and the different sectors of the market, I figured, why can't I just do this myself instead of paying a monthly fee for someone else to hold it? For more info on how I got started investing in ETFs, see my blog post!

Now, let's skip to the important stuff!

I'm going to explain the top 5 mistakes I made this year starting off in the market on my own. Some of these mistakes might sound obvious at first, but it's easy to get sidetracked along the way!

  1. Buying in all at once instead of gradually

  2. Getting consumed in deferred losses and wash sales

  3. Choosing non-liquid, low volume ETFs

  4. Keeping too many positions open

  5. Not realizing enough capital gains

Mistake #1: Buying in all at once.

If you put all your money down on one ticker in one transaction just to sell it right back with a gain, you may be in for a scary surprise!

Even the best analysts miss price targets, so even if you felt 99% sure that your ticker would hit a certain price target by the end of the day, week, or month, there are plenty of opportunities for it to fall fast intraday!

So, what happens if you did buy in all at once?

Let's say you buy 10 shares of a $100 ETF. You spent $1000 in total and are hoping to sell for $109/share for a total of $1090 ($90 gain). You set your sell limit to $109 good until cancelled (GTC).

You go to grab lunch, come back, and suddenly the price is at $99.50/share! Darn, don't you wish you saved a portion of that $1000 to buy more at a lower price?

Okay, so you know how that goes. You're stuck waiting for the gain with no cash to invest!

But imagine having 10 different lot orders, each with their own price assigned? Now your average price paid goes to $99.75/share. That means if the price ends up bouncing up to $109 later in the day, you'll have gotten a better % gain from a lower price average and having patience!

Downside: Let's say the ticker doesn't inch down but shoots straight up to $101.50 due to a short squeeze and doesn't look back in the near future.

Now, had you only spent $500 on shares initially waiting for it to go down, now you missed out on 2x the returns when it goes up! Your only chance would be to buy higher if you don't want to miss out on the remainder of your trading power. In this case, once the price hits $109, your average cost is now $100.75.

I like to buy in increments throughout the day and sell different lots individually most of the time. This way, If the price drops but then fluctuates, I could technically sell off the lots with the highest cost to bring my cost average down.

Mistake #2: Getting consumed in deferred losses & wash sales due to lot selections.

Anytime you go to sell a portion or all of your shares under a certain ticker, there are obviously tax implications.

When you sell at a gain, you're taxed based on the capital gains tax rules. If you sell at a loss, it can help offset some of those taxable gains.

Let's say you sell at a loss today, and then re-buy more of the same ticker tomorrow. You hold onto those shares overnight and realize when you wake up that the price paid on your open positions just went up!


This happened because you re-bought the same shares within 30 days of the realized loss, and the $ amount that you lost from the previous transaction got tacked onto your open positions! This is called a wash sale.

If you're as meticulous as I am, you'd have each lot set up to only sell at a gain even accounting for the adjusted price!

However, this becomes very difficult if your replacement shares are far out of price range and your FIFO tax preference sells your highest cost share by accident!

Bottom line: keep your realized losses manageable!

I made the mistake of continuing to buy shares upon price dips, but the price kept dropping faster than I had money for! It's no fun when you have to sell your shares just to stay in the game, but sometimes it's better to sell sooner rather than later after the loss accumulates.

Mistake #3: Choosing non-liquid, low volume ETFs.

There are so many ETFs to choose from nowadays, it's easy to become drawn to the theme based, uniquely named ETFs that are fairly new to the market!

If you're looking to trade an ETF or profit from a particular sector of the market, you want to make sure the price action has enough fluidity. In other words, the ticker should have tight spreads, a high trading volume, and/or a higher market cap than compared to it's peers to be easily traded.

If you buy an ETF that has a wide bid/ask spread, that means you may end up paying more or selling for less than the actual mark price because there is not enough volume behind the trades.

Often times, the low volume and low-cost ETFs take much longer to see an equivalent gain as do the higher market cap ETFs, so for those they should be viewed as a more long-term position.

Some of the largest ETFs traded are the SPY (first ETF ever), QQQ, IVV, VOO, & DIA which track major indexes and have solid daily volumes. These ETFs also have $Billions in AUM, making them easy to trade on the exchange compared to funds just starting out with a few million $ in AUM.

Mistake #4: Keeping too many positions open.

If we're talking about different tickers, that's one way you can have too many open positions. If we're talking about different lot selections, that's another!

Either way, hanging onto too many positions of anything can lead to careless mistakes and loss of control in your portfolio!

Let's be real, it's fun to have all different types of companies and ETFs in your portfolio, but we often lose sight of some of them as well.

Keeping too many ETFs open also dilutes your portfolio more than you may have intended for. It's good to have diversification, but not if you can't notice any significant gains!

Mistake #5: Not realizing enough capital gains while you have them.

You've probably heard the saying, "nobody ever got hurt taking a profit" on Jim Cramer's show, Mad Money. Well, it's true!

The first thing I have to say is, if you're worried about capital gains tax, then stick to your full-time job!

Day trading is a risk that individuals have to take if they want to earn income. There's actually nothing to be worried about if you're paying yourself with the money that would have been coming in from your regular paycheck, right?!

The only difference in taxes is that your short-term capital gains miss the slight discount that you would be getting from a long-term position sale. It's essentially the same tax bracket as your regular income tax. Either way, you have to pay taxes if you're making money! Duh!

For me, I took a major cut to my salary in order to make time for this new passion of mine, so I'll actually be paying less in taxes than I would have normally!

This year, in an effort to build on my account value, I started realizing positions as soon as they turned a slight profit. Although this returned (literal) pocket change back into my account, I consistently re-bought the same or different positions to try out all parts of the ETF market.

Smaller gains, when taken frequently, can accumulate to meet your weekly goals.

This method, for sure was not guaranteed to outperform the greater market, but it certainly gives you new chances to buy over and over again. For someone as indecisive as I am, this could actually be a dream!

The amount you get back from each trade is determined solely by you. Everyone has a different risk tolerance, financial goal, amount of time, and level of patience!

**This is not financial advice**

Until next time!

XO Hope

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