5 Common Habits Successful Traders Avoid Like The Plague

5 Common Habits Successful Traders Avoid Like The Plague
May 27, 2015 Market Traders Institute

5 Trading Habits to AvoidThere are obvious differences between traders who see positive returns and those that see negative returns. Now, we’re talking about more than a smile versus a grimace on their faces… As the FX Chief™ says, “successful traders do what unsuccessful traders can’t and won’t do.” While you might be well acquainted with this often shared MTI quote, did you know that the opposite is also true?

In reality, unsuccessful traders do what successful traders WON’T do and part of that has to do with breaking common trading habits that are culprits of many traders’ demises.

Here are 5 such habits that successful people proactively avoid like the trading plague:

Revel in Low Risk By Increasing Lot Sizes

If you haven’t experienced this in your trades yet, brace yourself. It is indeed coming. Finding a trading strategy or a set of trading strategies that work for you is great, but you have to always follow the complete strategy — no selective listening in the trading arena. When a trader sees that the market is setting up for a strategy that they’ve seen produce profits in the past, but then the risk in that trade is cut in half, temptation gets them and they just can’t leave well enough alone. Instead of abiding by their equity management rules, they try to revel in the low risk and up their trading lot sizes. If the trade is a winner, they couldn’t be happier, but oh when that one trade ends up being in the inevitable lot of losing trades that EVERY trader takes over time. With a larger lot size, that small amount of risk is amplified to equate to a lot of money and in the best case scenario, the trader takes a loss. In the worst case scenario, the trader blows up their entire trading account and that’s a wound that can only be healed with time.

Abandon Strategy Before 100 Trade Mark

Basically, in order to make sure that a strategy actually works, you have to test it as you would trade with any other strategy. This means giving it a fair shake or a fighting chance or whatever you’d like to call it. Typically, we suggest testing a strategy for a full 50 to 100 trades before making a decision about it. There’s a very good reason for this. If you test a strategy for, let’s say, 10 trades and decide that it’s a success, do you anticipate to only use it for 10 trades in your live account? Of course not! When you have a strategy that actually works, you’ll want to use it in as many qualifying trades as possible, right? The problem then becomes, what if that strategy doesn’t work when you test it out on 100 trades (something that’s more representative of how you’ll use it in real life)? Always remember, more testing is always better. Make sure to test out your strategies fulling before throwing them out or putting them to work in your live trades.

Chasing Losses

Prepare to be amazed by an incredible truth about the human race. We hate pain and love pleasure. Losing trades are a source of pain. Winning trades cause positive vibes and excitement. Even more true of our human nature is that we hate being wrong and will do just about anything we can to find how we can call ourselves right in almost any situation. In the trading world, this is manifested through traders who chase their losses. This usually happens when a trader loses a trade and then immediately jumps into the market going with what they think they see in the market after “learning” form their recent loss. Typically they see that they’ve entered onto yet another market wave or trend reversal. When a trader thinks that they’ve automatically learned a lesson from the market in a matter of moments after losing money or worse, when the trader thinks that they’re going to teach the market a lesson, trading strategies are tossed aside and emotions run the trade. Remember, trading is based upon logic. Gambling is based upon emotion.

Neglect a Balanced Lifestyle

Too much of a good thing is NOT always a good thing. Being too consumed with money or too consumed with spending returns over making them can both be destructive to your account. Successful traders make a point to live a balanced life. Just the right balance of work hard, play hard can keep your decisions in focus both on and off of the market playing field.

Always Trade News Announcements

Do major fundamental news announcements affect the market? They absolutely can! Does this impact always make for a good trade? ABSOLUTELY NOT. Sometimes if the market news is not polar enough, the market has a high probability chance of experiencing whiplash (when market buyers and sellers fight over what to do and no real market direction is derived). This indecision in the market can be hard to trade as entry and exit points are not clear and rapid indecision candles can wipe out a trade if the trader is not careful. Many successful traders do trade fundamental announcements, but they also know what they’re looking for from the announcement before it’s ever released. The key is to make a habit of making three contingency plans before the news is released. Typically, one plan is for positive news, one is for negative news, and one (typically the no trade zone plan) is for identifying what “no news” will look like; “no news” typically leads to unpredictable whiplash movements that traders are served well to stay on the defensive during.

 

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5 Trading Habits to Avoid

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