Two Deadly Mistakes That will Sabotage Your Trading
It’s not strange for find day traders who are skillful in the technical precepts of futures trading . But there is another factor to trading that is rarely talked about and given short shrift . Yet, in my opinion, it is the pivotal component of day trading that separates successful traders and unprofitable traders. Let’s face it, learning a trading methodology not a hard goal to achieve. Most trading methods are similar in nature, as each method is looking 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 resume their price action direction in a reverse 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 thousands of views, articles on emotional l aspects 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 successfully utilize a day trading system is a difficult and arduous proposition . In other words, learning to control your emotions while trading is no easy matter. To take it step further, it is my belief that controlling your emotions while trading is the single most difficult skill to master when trading.
Oddly enough, when I communicate with traders and bring up the topic of psychological paramaters of trading the response is almost universal, 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 falter within the first three months of trading. Something is clearly wrong.
I am going to elaborate on two very important tendencies new traders suffer , and subsequently sabotage their success. The first is over trading, and the second is trading with no stops, or adjusting their stops to accommodate a trade gone wrong .
Lets start with over trading, as this habit seems to be the most common malady I see in novice traders . To be accurate , there are not enough bona-fide set-ups during the course of the day to support the notion that you can initiate 10+ trades a day and be profitable . There are ample set-ups that “at face value” look like potentially profitable trades, but careful examination of the trade will show the trade is internally flawed, and should be avoided . Yet I observe trader after trader charge into these ill-advised trade in hopes of devising that one great trade. To be sure, that one great trade does not come along very often, maybe once a week, so it is futile to conceentrate on capturing only whopper trades. I am a singles hitter, and if I can garner 3 points on a given trade, I am happy . But in order to garner three points, I need all of my indicators to point in the same direction. If I discover any of my indicators moving opposite from the direction of the trade I am evaluating , I instantly exclude that trade from consideration. Further, I am diametrically averse to initiating counter trend trades. Which is not to say I never execute a counter trend trade, but I must be absolutely sure that the trade is a quality trade. In summary, over trading in the downfall of many traders, and most traders would be well advised to expend thier efforts on initiating 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 execute a trade without having preset stops in place. No stop trading is fiscal disaster . If you pick a trade and it heads in the opposite direction it is imperative to exit the trade and wait for a more favorable trade in which to participate. Often times I observe novice and experienced traders alike end up on the wrong side of a trade and then adjust their stops lower, hoping their trade will make a heaven-sent reversal . While trades can come back , it is highly unusual . The reason we set stops is to limit losses, and by lengthening 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 entered a unprofitable trade, take your lumps and move on to a better trade set-up.
Of course, as traders our mind set is to trade. After all, you can’t make money if you don’t trade. However, the goal is to be in the rightday trade at the right time. Your emotions will often dissociate your intellect from the realities of the market and you will find yourself in positions that can be disastrous . Check your emotions and ego at the door and only trade the chart in front on you, free from emotion, and work with with the reality of the chart in front of you. Hoping for a trade to work out is a bad investing strategy; pick the trades with the highest probability of success and profit.