In this weeks segment I am going to review the top ten trading errors to avoid, over the years these are the majors no no’s that I have underlined in my trading journal as high probability fails that lead to the biggest leaks in account equity.
Try to side step the following:
1. Trading When Tired
In my experience this is the blunder of all blunders specifically for the discretionary trader. There is nothing worse than sitting down at the desk after a late night or early morning, switching on the screens and trying to execute your trade plan. For the average human six hours or less of sleep has a significant impact on ones clarity of thought the following day. Make sure to log those eight hours before each trading day.
2. Trading When Hungry or Thirsty
Sounds straight forward right? but believe me the number of times I have been waiting for a set up concentrating on the charts and forgot to remain hydrated or let my blood sugar drop and just at the point of pulling the trigger on a trade I have become strangely distracted or second guessed myself. It is essential to maintain hydration and blood sugar when trading as these are major contributors to mental alertness.
3. Screen Staring, Over Stimulation
Another easy error is allowing yourself to become over stimulated by excessive exposure to the screens. When you sit for extended periods of time blankly staring at the screens you become hypnotized by the movement and actually disengage from the data on the charts. You have become over stimulated to the point of switching off. It is imperative to remember to take regular breaks from the screens throughout the day to maintain your mental edge
4. Trading your P&L and not the set up
Once you have got your bio mechanics and concentration right it is of paramount importance that you avoid trading your Profit and Loss. I cant tell you the times I have fallen foul of this chestnut. My advice, switch the profit and loss function off on your broker platform and focus on the trade plan not the cash outcome of any single trade.
5. Moving Stops or Targets
This is the error that will hamstring your P&L progress like no other. Once you have developed and back-tested your trading strategy avoid second guessing your well developed plan mid trade. Think of all the time and effort you put in creating a robust and profitable strategy it makes little to no sense to start tinkering with it on a trade by trade basis.
6. Failing to Plan, is Planning to Fail
Anytime you sit down at your trading desk and you are not adhering to a predefined trading plan you are effectively gambling, you should be in Vegas believe me you will have a better time. It is essential that each time you switch on your screens that you are intending to execute a trade plan and not just scanning charts for potential unplanned trades.
7. Screen Scanning
This trader fail is essentially linked to boredom that drives impulsive behavior that leads to big leaks in your account equity. So you sit down to the screens, low and behold and hour or two passes and none of your anticipated trade set ups develop. You start flipping through the charts looking at new instruments or different time frames. Trust me JUST dont do it, your P&L will thank you for it.
8. Taking Trade Tips
The minimal upside you may experience from doing this will be far out weighed by the downsides from engaging in this rookie practice. Taking a hot tip is setting you up for disappointment, taking a position whereby you don’t have knowledge or thoroughly understand the trade thesis or parameters only ends in tears eventually.
9. Being Over Eager For Action
This gem is a topic I covered in more detail in a recent trading truth piece. Essentially you must maintain composure to develop long term trading success, being over eager to experience action in trading is a trap door to liquidating your account. The traders core task is monitoring markets waiting patiently for pre-defined set ups to arise, not to sit on the edge of his seat excited and eager to trade.
10. Letting Losers Run
This final nugget applies to trades and errors in general. We all know that the mantra of cutting your losers early is an essential element to developing a successful trading career. One must also apply this principle to trading mistakes, when you make one, correct it at the very first opportunity do not let it become a compound error, where one mistake roles into another and another all because you didn’t have the gumption to address the first mistake.