Avoid These Two Trading Mistakes

It’s not unusual for find  day traders who are well versed in the technical skills of futures trading .  But there is another component to trading that is rarely discussed and given little considertion .  Yet, in my opinion, it is the only skill of day trading that distinguishes successful traders and unsuccessful traders.  Let’s face it, assimilating a trading system not a hard task to achieve.  Most systems are similar in nature, as each system is looking for for potential break outs and break downs for the trader to profit on in his or her trading.

Of course, the secret is identifying a tradable break out or break down is a challenging , and discerning which trades are just temporary retracements in one direction and bound to reestablish their movement in a opposite direction than the trader plans is frustrating.  Oddly enough, I have penned several articles about the emotional aspects of trading, and they are the least read articles I write.  While some articles get an abundance of views, articles on psychologica l aspects of trading are generally ignored .

And that is not as it should be.

Learning a trading style is relatively easy , as it is only a basic memorization and rote learning.  On the other hand, learning to implement a day trading system is a difficult and arduous proposition .  In other words, learning to curb your emotions while trading is no easy matter.  To take it step further, it is my feeling that controlling your emotions while trading is the single most difficult skill to accomplish when trading.

Oddly enough, when I speak with traders and mention the topic of emotional paramaters of trading the response is predictable traders commonly 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 fail within the first three months of trading.  Something is clearly wrong.

I am going to elaborate on two very significant mistakes new traders commit , 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 south .

Lets commence with over trading, as this phenomena seems to be the most common malady I see in new traders .  To be blunt , there are not enough bona-fide set-ups throughout the course of the day to justify that you can make 10+ trades a day and be successful .  There are many set-ups that “at face value” look like potentially profitable trades, but a thorough examination of the trade may expose the trade is intrinsically flawed, and should be avoided .  Yet I observe trader after trader enter into these marginal 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 fruitless to focus on taking 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 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 take 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 wise to concentrate on trading only high quality trades, those with a high probability of success.  Specifically, high quality trades usually occur when a trader trades with the trend.

There is absolutely no excuse for a trader to enter a trade without having preset stops in place.  No stop trading is fiscal disaster .  If you initiate a trade and it heads in the wrong direction it is imperative to exit the trade and find a more favorable trade in which to participate.  Often times I notice traders end up on the wrong side of a trade and then move their stops lower, hoping their trade will make a heaven-sent comeback .  While trades can change direction , it is a rare event .  The reason we set stops is to limit losses, and by increasing your stops you are, in essence, increasing your losses and your risk exposure.  In short, there is no reason to adjust your stop-loss limits.  If you have initiated a bad trade, take your losses and move on to a more suitable 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 correct day trade at the right time.  Your emotions will often disassociate 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 simply trade the chart in front on you, free from emotion, and trade 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.