Whether you are a new or seasoned trader, chances are you’ve made some critical mistakes that have caused you to be on the losing end of a trade. This can hurt your confidence as it hurts you pocketbook. This articles touches on the seven sins of bad trading practices.
So, the whole point of trading is to make profit for your nest egg or retirement, or whatever your motivation is for building a portfolio. In this lesson, we will explore the seven sins that may be causing you to losing money on your trades. These are some of the bad practices that everyone goes through, but once you recognize the issues, then you can pivot and break the losing cycle.
Here we go, the seven sins in bad trading practices.
Too Much Time Hunting for the Next Trade
It is a great practice to do your due diligence and keep an eye on trends, but if you’re on a losing streak and your putting in panic orders then your mistake is taking the time to look at the next trade and not so much what you’re doing wrong.
If you panic, you lose. Stop the panic trading and hopping on the next thing until you’ve had the time to analyze your strategy. What’s working. What’s not working. Are you seeing a pattern emerge?
Many traders who are still losing are doing so because they’re not analyzing what they’ve done right in the past and they’re hoping they’re going to stumble across something that’s a winning formula in the future.
A lot of traders lose sight that quantity doesn’t always mean quality. Sometimes a trader has too many options going on and not accounting for trade fees and costs over profit. Whether you’re day trading or swing trading, see how many pans you’ve got in the fire. The sheer volume might affect your decisions, which usually ends up being bad decisions.
Pick a select few to focus on and really watch them. Don’t get in the cycle of perpetuating end over end bad trades.
Too Much Capital Risk
Here’s a great piece of advice: Do not trade anything that you cannot afford to lose. If you’re all in and risking too much (or all) of your capital, there is a really good chance of losing it all.
Certainly, you want to make money – and the sooner or better, right? But really take a look at the risk potential before committing too much of your funds to a volatile market.
Depending on your risk potential and how aggressive you are willing to be, keep your trades within a reasonable ratio; small enough to make profit, not too big that is crushes you if it goes the wrong way. Find that sweet spot. With more confidence and a growing profit margin, you can increase your capital risk later.
What do we mean by market splatter? It means that you’ve got your eyes in too many markets (or exchanges) that you go splat. This is not to say that you cannot shop other exchanges to see who’s getting better rates or volume on trades you’re interested in, but if you’re new and trying to be everywhere at once, you are going to lose.
Hone in on a couple of your favorite exchanges and look at the markets. If you are putting so much time and effort into watching everything, you’re not leaving a lot of room for intuition. The truth is many traders rely on intuition to get them that little nudge. If you’re watching hundreds of markets then it’s really hard to get a feel for the nuances of any one market.
In essence, become a specialist in one or two strategies to see if it’s working toward a winning trade strategy. Don’t become market splatter.
Too Much Noise
There is no shortage of incoming information and this could become a serious problem. Between news feeds, social media, alerts, charts, advertising, friends, and even enemies, we are inundated with too much information. It’s not only too much noise, it could be a costly distraction.
The best thing to do is mute it all and try the clean slate approach. On-board the most reliable charts and indicators and build from there. Like it was mentioned in market splatter, too much noise and outside influence will distract you. Prune it down to the logical, most effective choices and become laser-focused on your trades.
We’re all familiar with the idea of making our money work for us but money doesn’t just go out and say, “Hey, I’m working for you.” Money simply does not work that way.
Of course you want to make money. You invest in your trades because you want to be compensated for your time and effort to make smart trades, but watch out for those expectations. Trading is not like normal work; you don’t put in 8 hours and expect a paycheck at the end of the week. Like most passion projects, you almost never get compensated for the time and resources you put into it, which segues into another issue – falling in love with the trade or commodity.
When we get emotionally attached, the expectation of being loved back is often a huge disappointment. Not every trade will be a win. Don’t let it be personal when it’s supposed to be clinical.
Hard To Break Habits
We all have them – bad habits. When it comes to trading, those bad habits can really help you lose big time. Maybe you can eke out a win once in a while, and that win justifies the bad habit, but in truth, that is just lazy.
Do some soul searching to really know your trading habits and how you react to good and bad circumstances. Your personality plays a huge role in winning or losing. One really bad habit is going full tilt. For example, if you’ve had a losing streak and then go “full tilt” then you’ve gone off center and making rash decisions. Frustration and anger could get the better of you and your reaction is counter-intuitive. If you find this happens enough, you will realize this is a bad habit – one that needs to be broken immediately.
Do you see yourself immersed in any of these seven sins of bad trading practices? If so, it’s time to stop and reassess. Go into a trade or market with a clean slate, a good plan, an exit strategy, and a good attitude. Turn that losing streak into a winning one.