Top Ten Trading Mistakes/Solutions - Mistakes # 6, Patterns From The Past

Last week we covered the fifth topic related to traders who do not set rules. The mistakes discussed come from the top ten that come up repetitively in my conversations with traders.

Mistakes that apply to new traders will be marked will “N” where as all the rest apply to all traders at any trading level but all are important to be aware of.

Mistakes

#1(N) No Financial Preparedness

#2 (N) A Solid Trading Strategy - There is none or too many

#3 - Trading is Easy – early wins

#4 - They neglect to develop a detailed game plan to win

#5 - They neglect to set rules that will keep them safe

Note: Mistakes will be list in priority order with the most important being the last.

As a reminder here is the Re-Cap of 1 through 4:

· Have a plan for how your money is spent in your trading day and life

· Set up rules to stick to the plan

· Minimize your losses and manage them

· Focus on one strategy till it’s mastered

· Become a “digger” and fine tune each trade

· Trading is what you make it, have fun and learn

· Be a learning sponge

· Be flexible and change with the markets

· Create a detailed game plan to win – Profits, risk rewards, targets, why you are trading, markets, size, rewards, penalties

· Create Rules that will protect your cash. Find distinctions that fine tune a trade. Work to be as precise as you can.

Mistake #6 – Traders possess patterns on how they dealt with success and failure in the past that now effect there trading today

When someone chooses to go into trading the last thing on their mind is how they dealt with success in the past. Their beliefs, values, relationship to money, fears and ego end up playing a large part of how they will react and grow as their trading progresses.

Beliefs come into play at each moment of a trade. Let’s go through an example of a trader (Joe), who is bringing the past successes into the present as he tries to transition into their new trading career.

If the previous career of Joe was an attorney and now he changes to trading for a living there can be many changes to his mind-set. His past successful experiences start to attack the mind through the ego. Many emotions get stirred up by losing such as, uncertainty, frustration, hesitation and more. Added to that is Joe’s ego which is really taking a hit from the losses he is experiencing. The first losses incurred while trading get to the heart of having to face losing as a reality of trading, when winning was mode of past successes.

After all an attorney’s mindset is to win for their client and also be in control of a situation. When they have mastered that successfully in the past, trading will put the ex-attorney mind set to the ultimate test.

I have said in the past that trading brings to the surface ALL ones emotional baggage whether you want it or not.

So while Joe has spent his money learning a system of trading that makes money his emotions become his greatest battle instead.

Many new trades are unprepared for the emotional transition trading fosters. The first thing they look at is the trading strategy and set-ups, who should be their broker and how to get the best deal. Very rarely do those looking to trade even consider what they think, and how that will affect their trading. One thing I do know those that get assistance early on have a greater chance of succeeding than those that do not. Getting some instructions on how to manage my mind set becomes critical.

Once Joe gets going and really starts to trade fulltime and the system beings to work for him he may or may not realize that his emotions are the one thing holding him back from true success. He may even experience a few years doing well and be able to make a living as he is totally unaware that his emotional demons maybe at work in his subconscious and can be causing and OK trade to be a great trade.

Emotions and patterns from Joe’s past will influence all aspects of the trade. The entire trade from entry with uncertainty, managing the trade with the fear of losing and the exit with the lack of confidence of being right, comes into play.

No one told Joe his emotions and background might work against him before he began to trade. Few realize the power emotions have over the trade and trader.

Another thing that comes into play is the ego. With social conditioning men are at a disadvantage if their egos are large and they start to trade. Now please do not misunderstand me here. I am not saying this is ONLY a condition reserved for men. Women also can have egos as well. Bottom line is trading in general has no room for any ego at all.

It’s just that men have a social conditioning added to the mix making them more prone to an inflated ego that can force trades. The need to be right also can cause a trader to hold onto bad trades not even though the market maybe dictating something else this creates an environment for many losses.

So what can a trader do to really prepare for the emotional onslaught they will experience?

Be Aware of Your Emotions

First and foremost be aware of your emotions and when they come up as you trade. Notice if you are you being pulled into a trade when you know you shouldn’t. I call this the feeling of being “hooked” and it’s caused from the fear of missing out.

Notice, when you are in a trade, it starts to go against you and you are not taking action to minimize the trade but holding on and going into the H-W-P mode Hoping and Wishing and Praying the trade will go in your favor. Now you are in a “freeze” mode and this one is sometimes the need to prove your right verses reacting and doing what’s best given the market conditions.

The market is what it is always trade what’s happening.

Relationship to Money

Everyone has what I call a “dollar threshold” where they have a dollar amount that really freaks them out. When they get close to the amount they react strongly. Many times you can really see it if you have had a really big win and than you start to do stupid things and end up gibing it all back and more.

Each person has an internal Dollar worth they sub-consciously put on themselves and when they surpass it all sorts of strange reactions occur.

NO Egos

Work to trade ego-less. You will fast learn to be easily humbled by the markets you trade and this is not a bad thing. There is no room for ego in trading.

A trader’s strength comes from knowing their weaknesses and strengths. Learning to manage the weaknesses in whatever way possible and leveraging the strengths is a combination for success.

Re-Cap

Know when your emotions are in control and you are not
Notice when old beliefs and patterns are influencing your trades
Find your “dollar threshold” and work to pass through it
Trade with NO Ego
If you can’t get rid of emotions when you trade GET HELP soon!
Work to establish disciplines

Have fun! AND In the meantime Great Trading!

Disclaimer: Please read and remember YOU are responsible!

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