10 Mistakes You are Making in Trading Part 1
- Not Treating it like a business
- Unrealistic Expectations
- Emotional Trading
- Journaling
- Tracking your trades
- Checklist
- Trading Routine
- Sticking to Your Plan
- Blinding Following A Trade Signal Service
- Not having a mentor
Let’s cut the crap, trading is difficult, there is a reason why so few succeed. I am sure you’ve heard the saying that 10,000 hours is required to master any craft, personally, I don’t believe this is sufficient enough to master the markets, double that and you’re getting close! With that being said, don’t get downhearted that you’re not a millionaire in 1 month or you’re still struggling after a year, you’re in for the long haul, but trust me, it’s worth it….
Statistics show that only 5% of traders succeed and develop into full time, consistently profitable traders. If you are reading this and fed up of being in that 95% of failing traders, here is 10 mistakes you are possibly, well probably, making. I guarantee changing just one problem you have been suffering from, will result in an improved performance at the charts. After all, everything takes time, trading is no different from any other profession that you need to master.
- Not Treating it like a business
When running a successful business, entrepreneurs need to project, report and analyze, by that I mean create their business plan, which analyses every detail required including financial projections, market research and competition analysis to name a few. Once the business has been established, these reporting procedures are required to continue until which time the business ceases to exist (if ever). Why as traders, should we ignore this tried and tested method for success? If its good enough for the Buffet’s, Zuckerberg’s and Bezos’ of this world why isn’t is good enough for retail traders?
Have you created your trading business plan? What are goals in your trading career? TIP – use the SMART acronym to help (Specific, Measurable, Achievable, Realistic, Time Based) What do you ultimately want to achieve from trading in your future? If your account is $500, make an achievable target for 3,6,12 months from now. Have you done your SWOT analysis? What type of trading does your personality suit? Scalping, Intraday, Swing, Position trading? What equipment do you require? What are the tax implications for your location? All this information will need to be included within your business plan and refer to this plan as you proceed throughout your trading career, keep in mind where you came from and where you are now, update it as you progress to include new goals and objectives!
Do you know certain characteristics of individual currency pairs, i.e. EURUSD likes a 50% Fibonacci retracement, CHFJPY shows large movements after level breaks, GOLD likes a deeper retracement during a trend. Data like this will give you added confidence whenever you are taking a trade as you will give yourself that edge that is badly required in this industry.
- Unrealistic Expectations
If you have spent some time browsing social networks, you may have seen a picture of a trader sat on a beach or beside a Lamborghini making tens of thousands of dollars from the ease of their phone. If not, they are easy to find! These traders or accounts are portraying the forex reality in a skewed light, tricking newcomers into the industry into a false reality and ultimately blown accounts.
The dream of achieving that level of income whilst enjoying the finer things in life is a possibility, the reality is different. The problem with society today is everybody wants the lifestyle that certain individuals portray on these platforms, but they want it now! And are not willing to put in the countless hours of work it takes to get there. Heed the advice of Warren Buffet when asked why few people follow his well renowned value investing strategy “because no one wants to get rich slow”.
FOREX requires a tremendous degree of patience and discipline, the normal learning curve for a successful trader is 2-3 years before one starts to become consistently profitable, most people are not willing to put in the work and quit prior to overcoming the hurdles, will you be the same? What I am trying to say here is, if you have a $1000 account, are you really trying to make $10,000 from it?! If you are, you are gambling, you are not trading.
- Emotional Trading
Ah the wonderful revenge trade! Every trader at some point in their career has lost their head after a few losing trades trying to get their losses back, say it with me, this is not trading, this is gambling. Normally, these trades follow no strategy and are usually placed within minutes of a losing trade, ultimately costing the trader a lot of money, or even worse, a blown account. psychologically this is exceedingly difficult to recover from and can lead to a lot of despair and frustration from the trader. Adding to frustration is if at the end of the month you would have had a profitable month from maintaining risk management, but this was ruined because of one horrible day.
- No Journaling
The use of a trade diary or trade journal may seem silly to some, but in fact it is one of the most powerful tools you can have as part of your trading arsenal. Write down your thoughts prior, during and after a trade, evaluate your daily performance, analyse areas you feel require improvement, jot down certain characteristics of currency pairs you have experienced so you don’t forget.
Whenever you feel down or depressed about your trading or if you are on a losing streak, look back at your journal, should you be updating the journal regularly you should certainly see signs of improvement.
- Not Tracking your trades
Do you know what your win rate is? Do you know what your payoff ratio is? Do you know what your average drawdown is? Do you know what your average percentage return per month is? If not, Why? Knowing key data such as the above will help your psychology with trading tremendously, if your data shows your average drawdown is 4 trades, this wont effect you as much as you know that you can still be profitable and the drawdown will come to an end soon!
Tracking your trades using paid software (Trading Journal Software, great program, there is a discount on this if you are a member of RT.FX!) or simply creating your own excel sheet will allow yourself to be more composed throughout your trading career, don’t rely on dumb luck, rely on data and statistics, tracking your trades will allow you to do that! It will also show improvements you have made, for example if at the start of your sheet you are working at a 45% win rate, moving up to 50% after a few months, this will give you a good boost to your confidence. This would not be known unless you start tracking!
- Checklist
Prior to take off, pilots go through their pre flight checklist, making sure the plane is in perfect condition before embarking. Should anything fail as they make their way through the checklist, the plane will not fly. Infamous trader Jack C Boyle once notoriously quoted “time is your friend, impulse is your enemy”, the is especially true as if your taking trades that do not fit all the criteria in your trade entry checklist, you’re flying a plane with a faulty engine. New or novice traders want the thrill of being in a trade and the potential of making money off said trade. However, if you are finding that your impulse is getting the better of you as you are taking trades that do not fit your checklist, try this one tip to help. Take the 10-trade challenge – for the next 10 trades, make sure everyone fits your setup criteria to a tee, what’s the worst that can happen?
- Trading Routine
One of the first things I do every morning is tidy and wipe down my desk so its completely clear of any clutter or rubbish, I feel like it helps me clear my mind and start fresh for the day ahead. I have my smoothy in the morning, banana, and blueberries, oh how healthy, and then get down for my scan at 10am every day, make my watchlist, then start trading. I trade the London session at that is when it opens here in the UAE.
Having a routine will help you in the following ways
- Get to know the session you’re trading in depth (E.g., UK, US, ASIAN)
- Creates structure and discipline
- Avoids spending numerous hours at the computer sitting down
- Improves confidence
- Sticking to your plan
So, you’ve got your strategy, created your trade entry checklist and think that’s it right? Wrong! Now comes the hard part, STICKING TO IT! The strategy part of trading makes up 30% of a successful trader, what’s the 70%…MINDSET! For those complete new traders, you may not understand what I am talking about, but when you start risking your money in the markets you certainly will. We are not born as traders, one learns to trade by trading itself. You have to have the discipline to stick exactly to your trading plan, don’t take trades that are 90% there, 95% there or 99% there, only take trade that fit exactly to your criteria. What will end up happening is those trades that are taken on a whim because they are “close enough” to your strategy, will cause unnecessary losses in the long run, yes you may get lucky on the odd occasion, but overall they will cost you money. Stick to your strategy, tell yourself for the next 5 trades you will 100% stick to your trading plan, and see what happens, the results will shock you.
- Blindly following a trade signal service
Don’t get me wrong, I’m not knocking signal services at all, lots of services out there are good, a lot are terrible and are fronts for pyramid schemes tricking consumers to sign up to a certain broker in order for those individuals to profit from referral fees. Whist signal services can work for some, most of the time they won’t. If you are looking for a signal service, make sure to select one that’s strategy is something that resonates with you, so you understand why the trades are being placed. From a personal stand point I don’t like signal services, from personal experience they are very cyclical, popular when you’re getting trades right, but the enemy when you’re not.
- Not having a mentor
You don’t have to do it all on your own, find a mentor who has been there and done it, and come out the other end. I have likened trading to a university degree, in university you have a teacher who will give you the tools and education needed to complete that degree, why shouldn’t the same be true for trading?
If you do wish to go down this route (and I think a lot would benefit from mentorship) it’s important to choose a mentor that’s strategy and way of analysing the markets resonates with you. There’s no point employing a mentor who is a full-time scalper when you are a swing trader, it wont fit, square peg round hole.