You know one of the biggest problems traders face?

The fact it’s just so EASY to place a trade.

It all comes down to self-discipline of course. But hand on heart… have you ever taken a loss and then immediately thrown another order in to try and take ‘revenge’ on the market?

I certainly have.

The biggest lesson I took was from a series of T-Bond trades back in Autumn 2006. It was a Friday, rumours were circulating of large stop orders a full handle (32 ticks) below the current market, and the big players were going after them.

It all made sense on the charts. You could see the level of support the stop orders were sheltering beneath, the price action on the day suggested a sell-off and I was looking forward to making a quick profit.

How wrong I was.

Why I was sulking instead of celebrating

It had nothing to do with the analysis. The information was solid, they DID go after those stop orders and the market sold off as expected. It was the way I handled my trades that meant I spent the weekend sulking instead of celebrating.

I placed my first sell order as the market made a break lower and was so certain of a positive result I moved my stop-loss order down to create a break-even situation far too early.

Sure enough, a little up-move caught me and took me out of the trade before the market plummeted down again. Frustrated, I hit the bid with another order to sell at market and almost immediately got stopped out for a loss. The market moved lower.

Excited messages were tumbling into our chat-room. Guys who had hung onto their short position were sat on decent paper profits that made me feel even worse. So what did I do?

Yes, I sold again (with a tight stop) and took another loss.

By now, the market was showing a real tug-of-war between the buyers and sellers and the price was flying around in a real high-volatility area. I had no business placing trades in all that mess but I just couldn’t accept I had missed the opportunity.

So I carried on selling into it despite the terrible timing and by the time I finally dragged myself away from the screen I’d put a serious dent in my account (not to mention my ego).

And that’s the danger of not keeping a tight reign on your emotions.

The heat of the moment can get the better of you and you’re only ever one click away from a trade – great if it’s part of your plan, a potential disaster if you’re in the process of losing your discipline.

But we’re only human and so long as you live to fight another day, all is not lost…

Take any lesson the market gives you with gratitude. The lessons that make you suffer a bit are usually the ones you needed to learn the most anyway. And trust me, when you experience them first hand, you don’t tend to forget them in a hurry!

But what can you learn from my experience?

Here are five common mistakes traders make that can snatch defeat from the jaws of victory:

1) Not calculating the numbers. Have you ever jumped into a trade just because the chart pattern looked like a dead-cert, or because you’d just noticed an indicator go over-sold? Do you always take time to calculate the potential reward against the risk you’d be taking before jumping in?

Always calculate the reward:risk to make sure you see a definite positive edge to the trade. It might mean standing aside on trades that look good at first glance. Also make sure you’re accurately calculating your position size. Even-out your unit size – take a trade with a 50-pip stop loss and you should be trading half the size you would with a 25-pip stop. Make sure you’re adjusting accordingly.

2) Gambling instead of trading. Are you trading by a set of proven rules? Do you know exactly when to enter a trade, when to move the stop loss, when to get out of the trade? Do you ever takes trades just because you don’t want to miss out on the action?

Until you reach the point where you are perfectly in tune with the markets, where your subconscious mind is feeding you intuitive instructions based on years of study and time spent in the trenches, make sure you stick to the plan. Gambler’s luck tends to be short-lived in the markets.

3) Getting emotional. Don’t take it all personally. Easier said than done when money’s at stake, I know. But the market doesn’t care whether you win or lose. It is what it is.

Instead of fighting the flow, learn to read price-action. It can tip you off to what might be ahead but trust me; no one has a crystal ball. If your trade takes a loss, move onto the next with a clear mind and a clean slate. Your biggest battle is with your own emotions and feelings not the market. And you are in total control here, you can CHOOSE whether to feel angry or upset about losses. But you’re making it harder on yourself if you allow those emotions to affect your decisions.

4) Impatience. I think traders coming from a more traditional working environment (where you get rewarded for getting stuff done, by being proactive) can have a hard time adjusting to the right mindset for trading. It needs to be almost like fishing… you know, where you throw a line out and wait. You can’t make the fish bite just like you can’t force a trade to come along. But it doesn’t stop many trying!

Learn to sit on your hands and take the trades when they come. There’s no punishment for standing aside until the time is right. In fact, the opposite applies – you’ll almost certainly take some heat by trading just for the sake of it. Or even worse… by trying to prove the market wrong.

5) Not taking profits properly. Take profits too early and you’re leaving good money on the table. If you’ve been going through a lean spell it’s common to start snatching at small profits as soon as they’re available. Try to maximise your returns from opportunities where the market breaks-out and offers you a free run. On the other hand, this doesn’t mean trying to wring huge returns from every single trade. Being greedy will always come to a sticky end.

Become proficient at scoping-out technical price levels you can use as good profit targets. Fibonacci extensions, support and resistance levels, trendlines… they can all help you time you exits well. Experiment with using trailing stops to try and keep you in trades for as long as possible.

Now I’m sure that’s all stuff you’ve heard before in one form or another but it certainly doesn’t do any harm to check up on yourself from time to time. Bad habits can have a way of sneaking in undetected. Do everything in your power to keep them at bay!

Be Prepared: Market Moving Data Coming This Week (London Time):

Wednesday 28th May:
No big market movers

Thursday 29th May:
13:30 USD Gross Domestic Product
15:00 USD Pending Home Sales

Friday 30th May:
No big market movers

Monday 2nd June:
08:55 EUR German Manufacturing PMI
09:30 GBP UK Manufacturing PMI
15:00 USD ISM Manufacturing PMI

Tuesday 3rd June:
No big market movers

I hope you enjoyed reading about my mistakes today (we all make them from time to time) and I hope you didn’t recognise too many of your own!