In all walks of life, there are certain pitfalls we should always try to avoid. With trading this is no different. A lot of people can talk a good game, say all the right buzz words or sentences, and sound like they know exactly what they are talking about, but that does not make them a great trader. Someone can be an excellent economist or extremely good at analysing the financial markets, but this does not equate to them being a consistently profitable trader (which is what every single trader should aim to achieve). It is NOT about winning or losing trades but being profitable at the end of the day.
5 Deadly Sins of Trading
So, what could be some of the things that might keep us from reaching that goal of becoming consistently profitable? Below is a list of the 5 deadly sins of trading – if any of these are currently present in your trading, it could lead to an end result you certainly would like to avoid.
- Not having and /or following a trading plan
We all know the saying: “If we fail to plan, we plan to fail” and this is very true in life, as well as trading. Having a trading plan, and to stick to the rules you laid out to yourself when trading, is crucial in your quest to become a consistently profitable trader. Find out more about trading plans here.
- Averaging down on losing trades
Adding to a losing position has been the downfall of many a trading account and could certainly lead to financial ruin. If a trader does not want to accept a loss within his/her risk parameters, and keep adding to average down the losing position, the result could be catastrophic. Always remember that managing your risk is what is going to ensure you live to fight another day.
- Lack of patience
Patience must be one of the key ingredients to being consistently profitable. If the market does not present the conditions to meet your criteria for entering a trade (based on your trading plan), then you should not be trading. Most people feel like they should be in a trade, as that is the only way for them to make money. Whilst this is true, we must think that we want to be in trades that have a high probability of being profitable, and not just trade for the sake of trading.
- Fear and/or Greed
These two emotions are what drives the markets and is certainly present when most people start their trading career. As long as you have a pulse, and still breathing, you will have emotion. So do not try and get rid of it, because that would just be silly. Rather try and see what good ways would be to manage your emotions. It is all about becoming systematic in your approach, and not keep looking at your P&L (Profit and Loss).
- Imposing your will on the market
Not accepting what the market is telling you and clinging onto your trade idea that presented itself at some point, could leave a nasty dent in your trading account. Never get married to a losing position. The markets can do anything at any time. Trying to “force” the market in the direction YOU are looking to trade, is not going to make any difference in the end result of that trade. As retail traders, we are not going to move markets, we are merely looking to take advantage and trade in the same direction where the big money is going. Accept the small loss if needed, and look for a new opportunity, be it in the same direction at a better price, or in the opposite direction from your original trade, if the market has turned direction.
Remember – always focus on how much you can lose in a trade, and not on how much you can win. Keep safe, and always follow your plan to ensure your best chance of becoming successful as a trader.
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