Top Trading Disasters and How to Avoid Them - Part I
1.
Never trade with money you can't afford to lose.
It's a classic mistake that is just a recipe for disaster.
If your nexttrade just has to be a winner or else you won't be able to pay the rentor buy food for the family then you just can't trade objectively.
Generally this is referred to as "trading with scared money".
Tradingwith scared money will always lead to trading out of emotion rather thanlogic.
If you are in this situation then stop trading immediately.
Make sureyou have your monthly expenses covered and put a regular amount away fora 'trading fund'.
Only trade again when you have sufficient to coveryour trading system's estimated requirements.
2.
Don't wait for the perfect trade.
Nobody enjoys a losing trade, unfortunately that's just part of thegame.
It's easy to sit back and demand more and more confirmations thatthe trade that you are about to enter is going to be profitable.
Perhapsyou tune into Bloomberg and wait for the commentators to agree with yourview or just wait a couple of days to be absolutely sure that thebreakout that you saw happening really is happening.
Perhaps you askyour friends and colleagues what they think.
Alternatively, some tradershave a list of a dozen indicators that all have to show green beforethey press the button.
Not being reckless and demanding a littleconfirmation is a good thing.
When taken to extremes though will lead to severeprocrastination.
If you find yourself always saying 'I knew that trade would bea winner, if only I'd got on it sooner' or you start chasing trades long afterthe opportunity has gone just because you saw it first then you know you need tocut down on the confirmations.
Just remember there are no guarantees in trading.
Be confident in your systemand take the trade as soon as it is signalled.
3.
Don't get carried away by a large winning trade.
If you trade long enough eventually you'll have a 'spectacular'.
Making 50%in a week or doubling your money in a month.
Suddenly you start to feelinvincible.
You calculate how quickly you'll become a millionaire and you startto browse the Ferrari or Aston Martin websites! The market has a nasty habit of bringing such dreams down to earth and all toooften you can find your best month ever is quickly followed by your worst weekever where you lose everything you made and more.
Always remain focused on your trading system.
Don't start to think you canoutsmart the market.
4.
Don't have your own opinion.
Your opinion means nothing to the market.
You are one person against tens ofthousands of other traders.
If you've ever found yourself screaming at yourtrading screen that the market is wrong then you need to let go of your ownopinion and follow what the market is doing.
Perhaps your opinion on market direction for the long term is correct but in theshort term all those differing opinions of all those tens of thousands of othertraders can cause wild fluctuations on any particular day.
Never trade with money you can't afford to lose.
It's a classic mistake that is just a recipe for disaster.
If your nexttrade just has to be a winner or else you won't be able to pay the rentor buy food for the family then you just can't trade objectively.
Generally this is referred to as "trading with scared money".
Tradingwith scared money will always lead to trading out of emotion rather thanlogic.
If you are in this situation then stop trading immediately.
Make sureyou have your monthly expenses covered and put a regular amount away fora 'trading fund'.
Only trade again when you have sufficient to coveryour trading system's estimated requirements.
2.
Don't wait for the perfect trade.
Nobody enjoys a losing trade, unfortunately that's just part of thegame.
It's easy to sit back and demand more and more confirmations thatthe trade that you are about to enter is going to be profitable.
Perhapsyou tune into Bloomberg and wait for the commentators to agree with yourview or just wait a couple of days to be absolutely sure that thebreakout that you saw happening really is happening.
Perhaps you askyour friends and colleagues what they think.
Alternatively, some tradershave a list of a dozen indicators that all have to show green beforethey press the button.
Not being reckless and demanding a littleconfirmation is a good thing.
When taken to extremes though will lead to severeprocrastination.
If you find yourself always saying 'I knew that trade would bea winner, if only I'd got on it sooner' or you start chasing trades long afterthe opportunity has gone just because you saw it first then you know you need tocut down on the confirmations.
Just remember there are no guarantees in trading.
Be confident in your systemand take the trade as soon as it is signalled.
3.
Don't get carried away by a large winning trade.
If you trade long enough eventually you'll have a 'spectacular'.
Making 50%in a week or doubling your money in a month.
Suddenly you start to feelinvincible.
You calculate how quickly you'll become a millionaire and you startto browse the Ferrari or Aston Martin websites! The market has a nasty habit of bringing such dreams down to earth and all toooften you can find your best month ever is quickly followed by your worst weekever where you lose everything you made and more.
Always remain focused on your trading system.
Don't start to think you canoutsmart the market.
4.
Don't have your own opinion.
Your opinion means nothing to the market.
You are one person against tens ofthousands of other traders.
If you've ever found yourself screaming at yourtrading screen that the market is wrong then you need to let go of your ownopinion and follow what the market is doing.
Perhaps your opinion on market direction for the long term is correct but in theshort term all those differing opinions of all those tens of thousands of othertraders can cause wild fluctuations on any particular day.
Source...