Two Common Trading Mistakes that Result in Trading Disaster
It’s not unusual for find day traders who are adept in the technical precepts of futures trading . But there is seperate component to trading that is seldom talked about and given little considertion . Yet, in my opinion, it is the only component of day trading that distinguishes successful traders and unprofitable traders. Let’s face it, assimilating a trading system not a hard task to achieve. Most trading methods are similar in nature, as each method is looking for for possible break outs and break downs for the trader to take advantage of in his or her trading.
Of course, the secret is recognizing a tradable break out or break down is a challenging , and discerning which trades are just feints in one direction and destined to revisit their movement in a adverse direction than the trader plans is frustrative. Oddly enough, I have written numerous articles about the psychological aspects of trading, and they are the least read articles I write. While some articles get an abundance of views, articles on emotional l implications of trading are generally ignored .
And that is not as it should be.
Learning a trading style is relatively simple , as it is generally memorization and rote learning. On the other hand, learning to implement a day trading system is a challenging and time consuming skill . In other words, learning to check your emotions while trading is no simple matter. To take it step further, it is my belief that controlling your emotions while trading is the single most difficult task to master when trading.
Oddly enough, when I communicate with traders and bring up the topic of emotional aspects of trading the reaction is predictable traders normally comment “oh, I don’t have any problem with that stuff.” The statistics, on the other hand, bear out a much different story. More than 70% of traders succumb within the first three months of trading. Something is clearly wrong.
I am going to elaborate on two very significant mistakes new traders suffer , and subsequently sabotage their success. The first is over trading, and the second is trading with no stops, or moving their stops to accommodate a trade gone south .
Lets start with over trading, as this phenomena seems to be the most common malady I see in novice traders . To be blunt , there are not that many legitimate set-ups during the a typical trading session to support the notion that you can initiate 10+ trades per day and be profitable . There are numerous set-ups that “at face value” appear to be good trades, but careful examination of the trade will show the trade is intrinsically flawed, and should be avoided . Yet I notice trader after trader excute into these marginal trade in hopes of making that one great trade. To be sure, that one great trade does not occur very often, maybe once a week, so it is futile to set your sights on capturing only whopper trades. I am a singles hitter, and if I can get 3 points on a given trade, I am happy . But in order to capture three points, I need all of my i oscilators to point in the right direction. If I find any of my indicators diverging from the direction of the trade I am considering , I categorically exclude that trade from consideration. Further, I am categorically averse to executing counter trend trades. Which is not to say I never execute a counter trend trade, but I must be absolutely convinced that the trade is a high probability trade. In summary, over trading in the achilles heel of many traders, and most traders would be smart to concentrate on entering only high quality trades, those with a high chance of success. Specifically, high quality trades usually occur when a trader trades with the trend.
There is absolutely no reason for a trader to enter a trade without having preset stops in place. No stop trading is fiscal disaster . If you pick a trade and it goes in the wrong direction it is imperative to exit the trade and wait for a more profitable trade in which to participate. Often times I observe novice and experienced traders alike end up on the south side of a trade and then adjust their stops lower, hoping their trade will make a miraculous comeback . While trades can come back , it is highly unusual . The reason we set stops is to mitigate losses, and by expanding your stops you are, in essence, increasing your losses and your risk exposure. In short, there is little reason to adjust your stop-loss limits. If you have initiated a unprofitable trade, take your losses and move on to a better trade set-up.
Of course, as traders our desire is to trade. After all, you can’t make money if you don’t trade. However, the secret is to be in the rightday trade at the right time. Your emotions will frequently disunite your intellect from the realities of the market and you will find yourself in positions that can be ruinous . Check your emotions and ego at the door and simply trade the chart in front on you, free from emotion, and deal with the reality of the chart in front of you. Hoping for a trade to work out is a bad investment strategy; pick the trades with the highest probability of success and profit.
