Like many, when I first started looking into Day Trading I was lured in by the stories of people turning $500 into millions. These people made it sound so easy and fool-proof I wondered why I never thought about doing it earlier? So I jumped in, with false promises of success and dreams of riches. But my first Day Trading Lesson brought a harsh reality that I’m hoping you can learn from.
Jumping right in
For the better part of a decade I have been a causal investor. My game was buying shares of mid and large cap stocks with the intention of holding long term. Many investments I jumped in were targeted at dividend stocks to improve overall value.
I was making anywhere from 2-3% growth on average and all the industry guidance said I was doing it right. But I wanted my money to do more than that. How can anybody retire at 40 with a 2-3% growth rate?
That’s when I started hearing about Day Trading and I was hooked.
I took my first step and created a new brokerage account specifically for Day Trading and made my first transfer. I was sure I would soon be loaded into a rocket ship and blasting off to the moon on a penny stock and would likely double or triple money in a month!
So I started searching. What was going to be the express train that would quickly take me to where I wanted to go? And that’s when I remember that marijuana was recently recreationally legalized in many states across the US. I thought, “Jackpot!” – no pun intended.
A quick google search narrowed my options down and I ultimately landed on Aurora Cannabis Inc, ticker: ACB.
Bad Buying Decisions
I had found my vessel to riches and all that was left to do was buy and wait. So I did exactly that. 1,000 shares of ACB at $1.05. Only a week earlier, ACB was in the $0.60 range, and a year prior was over $6.
I convinced myself that if the stock had climbed $0.40 recently and had previously been over $6, it was obviously going to continue to climb and it was a guaranteed big winner!
That was the extent of my research. I bought off a hunch and tossed logic to the curb.
The inevitable happened
Before my first trade I didn’t understand a thing about day trading. I didn’t know that buying and selling should happen rather quickly when price momentum moves upward quickly. I hardly understood the value of locking in unrealized gains, which is an important part of day trading. But I was new and naive.
So I bought 1,000 shares of ACB at $1.05 on a Friday. By Monday’s market open, the stock had dropped. The opening bell price was $0.92. I was down $130!
“It’s only momentary” I told myself, “it’ll recover and skyrocket just like last week!”
It didn’t. Within a few hours the stock had plummeted down to $0.73 and was consolidating at that support level.
I sold. I lost $320 and I didn’t have any clue why.
My First Lesson
It was a harsh reality to go from thinking I was going to double or triple my money to tucking my tail and losing over $300. But it was a taste of reality that I needed.
My first lesson was learning that it’s never a good idea to jump into a stock without doing the proper research and understanding why. The stock market is not a game and day trading is not gambling. The best way to be successful in day trading is first understanding what you’re doing. There are never any guarantees in day trading, but when you understand what and why you’re making a trade, you’re setting yourself up for success.