Top 5 Mistakes Traders Make

When you’re trading, the competition is fierce. You need to do everything you can to increase your odds of success. Just as important, you want to stop doing anything that reduces those odds. Pay close attention to these Top 5 Mistakes Traders Make and avoid them at all costs. It could have a significant impact on your trading results.

5. Poor Account Management

Many traders blow through their accounts rather quickly. In order to win in the market, you must first survive. In a video game, if you run out of lives, it’s game over. Similarly, if your trading account runs out of cash, you’re done trading. Obviously, you don’t want to go all in at any particular time. That’s not a long term winning strategy. The best strategy is to determine what percentage of your account you’re willing to put at risk at any particular time, and stick too. Obviously, the less you risk, the longer your account will potentially last, yet the slower it will potentially grow. Only you can determine your risk/reward comfort zone. Just keep in mind that slow and steady wins the race. Whatever you determine, stick to it.

4. Poor Trade Management

Many traders are so focused on when to enter a trade, they don’t give equal attention to what to do once in a trade. Overly loose stops (or no stops) can rack up big losses if the trade goes against you. Conversely, overly tight stops can stop you out of a good trade in temporary flux. Also, your system should provide you with reliable targets. Exit or adjust your stops as targets are reached. Use multiple time frames to detect any changes in momentum. And, don’t get greedy. Running with a long trend is great. If you have a nice profit, take it. Other opportunities will come along.

3. Relying on Inaccurate Signals or Antiquated Studies

MACD crossover may have worked for your grandfather, but times have changed dramatically. The markets now consist mainly of automated algorithms, which renders most traditional trading signals obsolete. If you’re still using them, you’re doing your trading a disservice. Ask yourself, how accurate is your system? If the entry signals are leading to too many poor trades, it’s time to find a new system. Do some research. Avoid systems based on antiquated studies.

2. Lack of Discipline

Discipline, as our previous post illustrates in detail, is one of The Two Essential Traits of Successful Traders. Its importance cannot be emphasized enough. Yet, surprisingly, many traders lack discipline, and their accounts suffer accordingly. As discussed in the previous post, discipline involves patience, precision, adhering to your rules, leaving out emotion, and consistency. Practice it.

1. Trading When You Shouldn’t Be In the Market

It’s a simple rule that’s widely overlooked: If there’s no trend, don’t trade. Like knowing when to fold in poker, knowing when to stay out of the market is just as, or even more, important than knowing when to jump in. Even if you’re countertrend trading, you want to make sure there’s a longer term trend (on a higher time frame) you’re going with. If the market is in consolidation or chop, sit out. Wait for the market to show you a trend.

When trading, you literally can’t afford to make mistakes. With your hard-earned money on the line in the market, there’s a thin margin of error. Avoiding the above mistakes will give you the greatest chance for success.

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