Top Ten Trading Mistakes/Solutions - Part 1 – Mistakes 1 thru 3

There is a large list of trading mistakes that could be discussed, however the focus is on the top ten that come up repetitively in my conversations with traders.

Some mistakes apply to new traders and these will be marked with “N” and others will be more appropriate for any trading level but all are important to be aware of.

Additionally, they will be presented in priority order with the most important being the last one presented. Solutions will also be included and the ten will be broken up into three newsletters.

So, let’s start with Mistakes 1 to 3.

#1(N) Financial Preparedness 

Many who choose to go into trading and make the mistake of neglecting to calculate what it will financially take to make it through the learning curve.  So when they go to trade and they start to work a strategy over and over many times they will put their money on the line and lose more than they make.  Money has a tendency to slip away very quickly with this method.  Not to mention the emotion toll it will take on ones confidence.

In the beginning losing trades can really eat up your cash quickly and there is so much to learn.  As a matter of fact, you will never know all there is to learn, in your lifetime, about trading and the markets.  There are different markets to trade and just when you think you’ve got it the environment changes and all original bets are off and you have to start all over again. 

Solution

When you are just starting out, be sure to make a specific plan for your trading cash and “living cash”. That’s the cash you will need to live on that will cover your expenses.  How you manage cash in general will be important and how you manage it while trading can mean the difference between success and failure.

Set rules for how much you can lose in a day, remembering losing IS part of this game.  Never lose an amount that makes you upset or that you can’t recoup in ONE day, otherwise you will always feel like you are digging yourself out of a hole never moving forward.

“Maximize the profits and minimize the losses” is a quote made popular by successful traders with good reason…..heed it!

Note: The results of your success will be determined by how well you manage your losses than the wins.  I know this sounds like it’s in confusing but it is the truth. 

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

This is when a traders goes to a 3 hour seminar gets sold on how easy trading is an how much money they can make, take the families retirement saving and loses it on “the system”. 

Again emotions and greed can kick in with the possibility to make cash easily. This is a place where caution is critical.  There is nothing wrong with a system and knowing these types of systems tend to have a cycle because they work under certain market conditions.

No if you think this is “bunk” than think back and can you remember any system that was aggressively marketed 10 years ago that is still being marketed today?  If they are still alive than maybe it is a worthwhile system to look at.  Most are designed with current market conditions and most will lose their strength when things change.  So please be aware of what you are buying and doing. 

Another error with strategies is having several strategies and mixing them together with none working. The lack of focus fosters the inability to fine tune a good strategy and perfect it.

However, I will also say that trading is an amazing business where, when you plan and work the strategy you can do very nicely for your self, your family and also help your community and others.  This is a good thing!

Don’t mix strategies especially when you’re new to trading.

Solution

Pick a strategy you like and a market to trade in.  Stay focused and fine tune each time you trade until you have the winning combination of 85% or better. 

Remember each strategy changes with each market and will most likely change over time. 

Focus, focus, and oh yes focus. This is your best plan of attack to successful trades.

Look for anomalies in your statistics as well like the time of day of winners and losers even the day of the week. When thing work and don’t work.  Become a “digger” and find a way to make the trade work.  

#3 – Trading is Easy     

There are two main things that contribute to the feeling of “easy”.

First if you go to one of these big free seminars that shows software that has easy signals of buy here and get out and sell there. 

They show you how it works and of course when you get it home for some reason you can’t seem to make the money that the instructors made in the seminar.

Or worse yet you make some money easily and say “Wow this is a piece of cake and now I can make a fortune easily!” 

Now the trader with a false security starts to increase the size of their trades and when the losing streak begins it can be violent and fast.

Bottom- line trading is NOT easily!  It takes work caution and I compare it to learning and winning in a formula one car.  Would you get in the car having gone around the track one time and enter the race with the expectation you were going to win the first time out?  Of course not!  So why would you think anything different with trading?  It’s that intense and so much to learn.  It’s Ok to get excited just be realistic and decide you are going to learn as much as possible. 

Have fun creating your own system.

Solution

I don’t mean to burst your bubble but trading is NOT easy or at least not as easy as some paint it to be.

It takes work and time in the market to learn the environment.  So setting up a plan to learn is a good thing.  Studying each day and setting time aside to learn the components of your trade be it technicals, fundamentals, and strategies can move you forward very quickly.

Writing down (3) new things you learned each day and re-reading this list each day before you trade can speed up things as well.

Re-Cap:

·        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

In the mean time Great Trading!