When you’ve taught as many students as I have, you start to notice patterns. There are several common issues and hangups that hold back new traders, slowing down their progress, and in some cases, ending their trader careers before they begin. If you are a new trader, or a struggling trader, step back and examine yourself – do you engage in any of these self-destructive beliefs or habits?
Attempting to Avoid All Losses. I get it. Losing money sucks. It just does. But, it happens. And it doesn’t just happen when you make a mistake; you can do everything correctly and still lose money. There is no magic alignment of indicators that will only show you the trades that cannot possibly fail, so stop looking for it. You will trade poorly if “never losing money” is your primary goal, and be very disappointed when you eventually realize it’s not possible.
Instead, focus on managing your risk. Have a defined stop loss for every trade. Respect those stops, recognizing that one good trade will wipe out five bad trades where the risk was managed and losses kept small.
Jumping Around. One week you are obsessed with a Twitter guru. The following week it’s an author. A month after that, it’s a super secret setup you read about in a forum. You are always looking for the holy grail and never giving anything enough time to pan out.
It’s important to find a style of trading that suits your goals, resources, and personality; what works for one person might be a disaster for you. To do that, you need to try some different things out. But make sure you are giving them an opportunity to really work (or not), before moving on to the next shiny thing.
Too Many Squiggly Lines. When it comes to indicators, less is more. I receive more questions about what indicators to use than almost anything else. Trading is an exercise in filtering out the noise; we are constantly bombarded with information and a lot of it is bad or irrelevant. While indicators can be helpful, they can also be a distraction. If you spend a lot of time fiddling with indicator settings, or talking yourself into or out of trades based primarily on what the indicators say, you are doing yourself a disservice.
Your primary focus as a technical trader should be on price. It’s the most important chart feature, and the basis for most of our trading decisions. Additionally, many indicator readings are derived from price itself, meaning they lag the actual price data.
Get Rich Quick. If you think trading is like buying a lottery ticket, you’re wrong. I see a lot of new traders counting their theoretical millions before they’ve even started trading. Can you make a lot of money trading? Yes! And there’s obviously nothing wrong with wanting to make a lot of money trading. Just like there’s nothing wrong with wanting to make a lot of money as a surgeon. The only difference is, your average pre-med freshmen doesn’t expect to make a surgeon’s salary while still in school. And if you are placing trades that could make you a ton of money compared to your account size, with the idea of getting rich quickly, you are probably going to get poor quickly instead. Set reasonable goals for yourself and build up to those huge paydays.
Jumping in Without Any Education. Make no mistake – every trader pays for an education. The question is, will you pay for classes, mentorship, and the skill set you need to become a good trader? Or will you pay through losses that drain your account down to nothing?
This is at the heart of all the issues above. Like most things in life, trying to take shortcuts doesn’t pay off in the long run. I know, because I had some big losses before I found a trading mentor who could teach me a system that worked and help keep me on track until I was consistent. Without that, I could have spent years bouncing from one idea to the next, losing money the whole time. Invest in yourself with a quality education – you won’t regret it.