Mistakes are inevitable in trading. The market by design forces you to get carried away and make mistakes. However, the difference between a successful trader and one who continually struggles often boils down to a single crucial factor: awareness. A deep awareness of our trading mistakes allows us to "observe", "change" and "grow". This journey of self-awareness and improvement is key to your success as a trader.
Mistake 1 - You Listen to Opinion - Do not believe anyone’s opinion in the markets. NOT EVEN YOUR OWN. Learn to trade from the reality of what you see and nothing else. The sooner you learn that lesson, the faster you become profitable.
Opinion leads to hope. Hope kills in the market. Hope has its origin in emotions. You cannot trade emotionally. You have to plan your trade and trade your plan.
If you have no opinion, then there is nothing to change. YOU WILL TRADE WHAT YOU SEE AND NOT WHAT YOU THINK. Trading what you think can be one of the greatest traps into which you can fall.
Mistake 2 - You are Lying and Dishonest - You kid yourself about your trades. You hang on to them in the vain hope that somehow they will prove you right. You even move your stops back to give the trade "more room." That's the tragedy behind your dishonesty, YOU ARE DISHONEST WTH YOURSELF.
If a trade goes against you, you read into the chart what you want to see instead of what's really there. YOU LIE TO YOURSELF. The market has clearly turned. But you are telling yourself that this is only a correction and that if you hold on long enough the market will go back up. Sure it may, but what if you went broke before that happens!
You're dishonest because you know all these things but you won't admit them. Sometimes you revenge trade to lessen the blow. That is when the market really punishes you for being a liar and for being unfaithful to your plan.
Mistake 3 - You can't stand losses - If you cannot take losses in your trading, you have an ego problem. You do not understand that losing is part of the business of futures trading. You do everything that is not part of your plan to salvage the trade fooling yourself in the process. Your pride prevents you from taking that loss and moving on to the next trade. Your big fat ego delivers a mighty blow to your trading capital and confidence.
There is an art to losing. You have to be like the guy who runs away today, but lives to fight another day. Losses start small but can turn bigger in no time if not cut when the trade turns against you.
Mistake 4 - You overtrade - You are not selective in your trading. You do not understand quality and take on any trade that "looks" good. Below are some of the reasons-
Because you are greedy. You are ready to jump on the next opportunity to trade, however flimsy. Market lays out the perfect trap and you jump in, without perspective. Then the trade goes against you, the emotion of fear takes over and you exit. The cycle repeats.
Because you are bored and impatient. You are addicted to the thrill and adventure of being in a trade. So you feed your addiction by overtrading. Obviously, quality of the trade is not priority.
Because you trade with money you cannot financially afford to lose or would kill you emotionally to lose. You might have taken losses that have had such a disastrous emotional impact on you that you decide to find better trades to recoup your loss. Again, quality does not matter as emotions guide you.
Because you are under-margined. Your exposure is beyond prudent limits and/or your stop losses are too near such that all too often you have to take a hit and get out too soon. Some of you are emotionally under-margined. You just cant take the heat or stand the pain when the trade goes against you. So you need to be out too soon.
Because you do not have a system to select quality trades. You are not fussy enough. You take any trade that "looks" good without going through the rigour of selecting only the best trades.
Mistake 5 - You lack perspective - When you decide to enter a trade, do you look at the weekly or even the daily chart? You need to get the bigger picture.
Understand and see where prices are in relation to where they have been and to where they might go.
Know where major support and resistance exist, and don't trade into them, trade the reversals and breakouts from them. Take profits at major support and resistance areas.
Know the weekly and daily trend and trade with them, not against them. Also know when the bigger trend is maturing/turning though it does require experience.
Mistake 6 - You are too attached to the trade - Once you have taken a trade as per your system and trading plan and put your SL and Profit Target on the system, then there are only 3 outcomes - your SL will be hit, your profit target would be met or the trade will go sideways. But you cannot take your eyes off the screen to see how the trade unfolds because you are anxious or you have nothing else to do.
You are affected adversely by the outcome of the trade if it hits your SL or become ecstatic if it it meets your target. As a trader, you should be immune to the outcome of the trade. Whatever happens, you should accept and move on to the next trade. If you get attached to the outcome, it will impact your confidence and your ability to move on.
Mistake 7 - You lack humility - You are not humble enough to admit that you are on the wrong side of the trade and get out. You know after taking the trade that you missed something or overlooked a factor while planning the trade, but your pride prevents you from taking your loss and exit while the loss is still small.
Another related mistake is your stubbornness. You ignore the many signs that the market is giving you to quit your trade, take your loss (or profit) and run. You do not know that the market is a beast, respecting none. You learn this only after making several expensive mistakes wherein the market overpowers you into submission. You are then left with only fear and awe of the market. You may even decide to quit the market rather than be humble.
Mistake 8 - You are greedy - You stay in too long because of your red hot greed. You think and drool about anticipated profits. You ignore the many signs that the market gives you about the churn happening and the market turning. You are so sure that every trade is going your way that you do not care about taking profits and getting out.
The truth is that you do not know the art of taking profits while the market is going your way. You have to trade one or two sets of contracts to cover your costs, one or two sets of contracts to take some profit out of the trade, and one or two sets of contracts to profit from runaway moves.
Mistake 9 - You are looking for the Holy Grail - Some examples are :
The perfect technical indicator
The perfect setup
The perfect analysis
The perfect tip?
You have read many books/ attended many seminars by Gurus of trading wisdom telling you about the infallible indicator or the infallible setup. They would lead you to believe a magical indicator that has the power to predict market turns or tell you when to buy or sell. You do not realize that an indicator is nothing but a mathematically calculated formula which may or may not work. In fact, popular indicators are known to be manipulated by smart money to rig the game.
There cannot be perfection in trading the markets. Accept that the markets cannot be known, however, you can still make money in the market without knowing what the market is going to do next - as long as you have a trading edge and you are in control of your trades and your mind. Don’t and keep chasing the Holy Grail with of course, disastrous results.
Mistake 10 - You brag about your trades and your analysis - You keep telling the world about your trades that cannot go wrong. Or that the market is going to behave in a certain way. You probably do it to impress them or feel good about your analytical skills. And now you have to deal with the pressure of defending your pride or living up to someone else’s expectations as if the pressure from trading was not enough.
It is all right to discuss trades on the basis of merits of the trade but you do not need to brag about them and talk about how much money you made (or lost). Unknowingly, it will drive you to commit trading errors because emotions get involved. You mind plays tricks on you in an effort to protect/ salvage your image now that others know about your trade or your analysis.
In the next post, we would talk about Your Biggest Assets in Trading. You need to do all it takes to develop these winning traits.
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