Ever feel you’re not quite in control of your trading actions?
Do greed and fear drive your decisions rather than a proven trading plan?
Let me tell you exactly what signs to look for. And then I’ll tell you what to do about it.
5 ways reckless ways to ruin your trades
1) You trade without a proven strategy. Without a sound strategy you really are stabbing in the dark. The right to trade intuitively – where you place trades based on gut feel – needs to be earned.
Solution: Stop trading immediately and get yourself a proven strategy that delivers long-term positive expectancy! Design one yourself of pick up a copy of a tested and proven commercially available strategy to cut your teeth on.
2) You don’t have a plan that tells you exactly what to do. The trading plan tells you how, when, and where to deploy your strategy. You should be in no doubt what you need to do at what times. It should even tell you when you should stay clear of the markets – staying flat is a perfectly legitimate trading position all of its own.
Solution: Get your trading plan down on paper and keep it where you can see it as you trade Remember the ‘5P’ maxim – Prior Planning Prevents Poor Performance.
3) You have no risk management measures in place. Do you have a method of measuring how much to risk on each trade? It can be as simple as breaking down your account into 1% ‘Units’ and risking a single unit on each trade. The location of the stop loss order will let you calculate how many units to risk. It may even keep you out of volatile markets completely – the risk may be too big for your account size on certain trades.
Solution: No risk management in place? Read Trade Your Way to Financial Freedom (Van Tharp) as soon as possible.
4) You take revenge trades or you try to jump on breakout moves in the heat of the moment. We’re moving into real gunslinger territory now. I know it can be incredibly hard to watch the market take out your stop loss only to reverse and head back in the ‘right’ direction. It’s so temping to bang in a quick order and show the market you were ‘right’ in the first place. Or equally as bad, trying to jump on a breakout move just because you notice a flurry of momentum. It’s all fine if it’s part of your plan, but real bad news if you’re winging it.
Solution: Try moving out to a longer trading time frame. Instead of day trading or scalping by the minute move out to hourly or daily charts. It can slow you down and help you carefully consider your decisions before you pull the trigger.
5) Your emotions dictate your ability to place trades. If you’re not taking all the trades your plan says you should be you are gambling. You might feel like you’re playing it safe by dodging the odd trade that ‘looked bad’ but by doing so you’re riding rough-shod over the probability and expectancy of your strategy. Missing out trades can be just as bad as firing off orders willy-nilly. It does require a bit of mental toughness but this truly is the essence of success in the markets.
Solution: Stop trading and then scale back the money you’re risking by using a mini-account, micro-account or even a demo account. Go back to a level at which you can make decisions clearly with no emotional attachment to monetary loss. Test the water tentatively as you go bigger again. This may be something you have to work through in stages.
So spend some time analysing the way you trade.
And be honest with yourself. There’s no shame in holding up your hands if you do discover one of these traits lurking within. In fact, it’s great news…
It means you’ve just taken the first step towards putting things right!
Trade safely and I’ll catch you next time.