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That’s why you should be prepared to expect them and if possible not make them. Easier said than done you would say and you will be completely right. That is why I have compiled that list of trading mistakes that you should be trying to avoid. Real life trading will show you how “easy” that could be. 1. Trading without having a predefined trading plan The first of the 10 fatal trader mistakes often made is trading with no plan. Having a written predefined trading plan will help you for two reasons. Trading depends on several aspects, which include the situation in the markets around the world, the status of overseas markets, the status of index futures such as Nasdaq 100 exchange-traded funds. Considering index futures is a wise option for evaluating the overall market conditions. Make a to-do list and build a habit of researching the market before calling your shots. This will not only keep you from taking unnecessary risks, but it will also minimize your chances of losing money. 2. Over-leveraging Over-leveraging is the second mistake of “what are the 10 fatal mistakes traders make”. Over-leveraging is a two-edged sword. In a winning-streak it could be your best friend, but when the trend changes, it becomes the greatest enemy. Recent talks about banning leverage higher than 1:50 for experienced and 1:25 for new traders in the UK have been a result of a lot of traders losing their money too fast. Whether it will happen next year or not is a matter of time for us to see. This is good news for most of the inexperienced traders, because it will somehow limit their exposure. It will allow them to follow their money management rules easier. For greedier and more impatient traders, this is terrible news. Fortunately, this might lead to a better result on their performance in the long term, as well. Over-leveraging is a dangerous way to believe you can make more money quicker. A lot of traders are mislead into this way of thinking and end up losing all their money in a short period of time. Some brokers are offering insane amounts of leverage (like 1:2000) that can lead to nothing more than oblivion. Therefore, one needs to be extremely careful when selecting those levels and the brokers that represent them. That’s why diversification among different brokers is probably the best strategy. 3. Staying glued to the screen a) Set entry rules Computer systems are more effective for the purpose of trading because they don’t have feelings about the things that go into the trading environment and they are neither emotionally attached to the factors that are in one way or the other related to trading. Moreover, computers are capable of doing more at a time as compared to mechanical traders. This is one of the several reasons that more than 50% of all trades that occur on the New York Stock Exchange are computer-program generated. A typical entry rule could be put in a sentence like this: “If signal A fires and there is a minimum target at least three times as great as my stop loss and we are at support, then buy X contracts or shares here.” Computers are more rational when it comes to taking quick decisions following a set of rules. No matter how experienced traders are, sometimes they tend to be hesitating at taking a decision no matter what their rules state. b) Set exit rules Normally, traders put 90% of their efforts in looking for buy signals, but they never pay attention to when to exit. At times, it is difficult to close a losing trade, but it is definitely wiser to take a small loss and continue looking for a new opportunity. Professional traders lose a lot of trades each day, but they manage their money and limit their loses, which leads to a profitable trading statement for them. Prior to entering a trade, you should be aware of your exits. There are at least two for every trade. First, where is your stop loss if the trade goes against you? This level must be written down. Mental stops don’t count. The second level is your profit target. Once you reach there, sell a portion of your trade and you can move your stop loss on the rest of your position to break even if you wish. As discussed above, never risk more than a set percentage of your portfolio on any trade. 4. Trying to get even or being too impatient What are the 10 fatal trader mistakes? Rule number 4 is patience. Patience in FOREX trading eventually pays off as it allows you to sit back a bit and wait for the right trading setup. Most traders are too eager to jump in and trade whenever any opportunity arises. This is probably due to our human nature and the eagerness to make a “quick buck”. But if there is one thing that ensures a high probability of winning, it is having the patience to grasp all the necessary information before you trade. This apparently will take time as there are many factors involved in it, such as the forming of trends, trend corrections, highs and lows. Impatience to look at these matters could result in loss of money. It could be helpful sometimes to take a break, allow oneself to have the time to look at the bigger picture, instead of focusing too much on one aspect. Remember that a single transaction might resonate in a series of future losses if executed at the wrong moment. It takes time and patience to wait for the market correction, before you commit to a trade. BUT IT TAKES TIME…Some traders fail to realize that to be successful will take time. They often fall prey to their own impatience in the hope of earning fast money. It could be a rough environment, and charts might be hard to read, so it is wise at times to step back in order to avoid costly mistakes. Don’t rush things out, or try to enter in a trade at all costs by just following your gut. The market could be quite tricky and often does send out the wrong signals. Wait patiently for the best opportunities to align themselves and then act mercilessly. 5. Ignoring the trend “The trend is my friend“- another cliche sentence, which has helped me stay on the right side of the market for as long as I am a trader. If you think about trading the way I do, it could be a boring business, but at least one that makes money. I am not really interested in quick returns. I am not interested in penny stocks. I am not interested in the most popular trades that everyone is talking about. I like to do my own analysis. The more boring a trade looks, the better for me the trade is. Always consider the trend before placing the trade! 6. Having a bullish/bearish bias Folk wisdom says that if you throw a frog in a boiling water, it will promptly jump out of it. But if you put the frog in lukewarm water and then slowly heat the water, by the time the frog realizes that the water has become boiling, it will already be too late. Studies of decision making have proven that people are more likely to accept ethical lapses when they occur in several small steps than when they occur in one large leap. This statement also explains nicely the unfortunate process of unprofitable trading. Once you are in a losing position, you don’t realize if it slowly accumulates into a big loss. You have your own bias and it might lead you into obscurity. That is why one of the most important elements of successful trading is objectivity. It is also one of the hardest elements of mastering the field of trading. Inattentional blindness is definitely not helpful to the human psychology and when it comes to trading, it could be detrimental. 7. Little preparation or lack of strategy Make sure that you close any unnecessary programs on your computer and reboot your computer before the day begins, this refreshes the cache and resident memory (RAM). Several trading systems allow you to set up the environment according to your needs, set it up in a way that allows for minimal distractions and help you keep an eye on each in and out, alongside. Keep in mind that a flaw in the trading system can be costly. Make sure you have a valid proof that your trading strategy does return positive results on a consistent basis. Do not rush into trading before that. 8. Being too emotional Trading the markets is like stepping into a battlefield- you need to be emotionally and psychologically prepared before entering the field, otherwise, you are stepping into a war zone without a sword in your hand. Make sure you have checked three things before you start trading: 1)you are calm, 2)you had a good night’s sleep and 3) you are up for a challenge. Having a positive attitude towards trading is extremely crucial. If you are angry, preoccupied or hung-over then you are at a bigger risk of losing. Make sure you are completely relaxed before you step into the market, even if you have to take yoga classes, it is totally worth it. 9. Lacking money management skills Rule number 9 of “What are the 10 fatal mistakes traders make” list is money management. Risking between 1% to 2% of your portfolio on a single trade is the best way to go. Even if you lose while betting on that amount you will be capable enough to trade some other day and make up for your loses. The amount of risk a trader can take is the amount he thinks he will be able to get back the next day. It is a wise option of start with a smaller amount and slowly and gradually increase the percentage. You can come back to point number 2 “Over-leveraging” and read it again. Having the right money management skills is probably one of the most important traits of the profitable trader. And of course- it is one of the most common mistakes among the losing traders. 10. Lack of record keeping Keeping records is a key to being successful at trading. If you win a trade, you should note down the efforts and the reasons that pulled you towards the trade. If you lose a trade, you should keep a record of why that happened in order to avoid making the same mistakes in the future. Note down details such as targets, the exit and entry of each trade, the time, support and resistance levels, daily opening range, market open and close for the day and record comments about why you made the trade and lessons learned. You should save your trading records so that you can go back and analyse the profit or loss for a particular system, draw-downs (which are amounts lost per trade using a trading system), average time per trade (in order to calculate trade efficiency) and other important factors. Remember, this is a serious business and you are the accountant. Conclusion What are the 10 fatal mistakes traders make?? Successful paper trading does not ensure that you will have success when you start trading real money and emotions come into play. Successful paper trading does give the trader confidence that the system they are going to use actually works. Deciding on a system is less important than gaining enough skills so that you are able to make trades without second guessing or doubting the decision. There is no way to guarantee that a trade will return profits. This is the actual beauty of trading and being consistent is based on a trader’s skill set and his/her eagerness to improve. Keep in mind winning without losing does not exist in the world of trading. Professional traders know that the odds are in their favour before entering a trade. It is a continuous process of making more profits and cutting down loses which might not ensure a win every time, but it wins the war. Traders or investors who don’t believe in this adage are more viable to making loses. Traders who win consistently treat trading as a business. While it’s not a guarantee that you will make money, having a plan is crucial if you want to become consistently successful and survive in the trading battle. About the author: Colibri Trader is a price action trader that is constantly looking for the apha. In the meantime, he does not forget to enjoy life, travel and even mentor other traders.

I came across an excellent article by Colibri Trader. Here are some gems from the article. The question of what it takes to become a master in any field (sport or business) has been in the epicentre of research for many years. It has occupied psychologists and philosophers alike for decades. Is it the innate talent what matters or a skill can be mastered with practice. What does it take for professional athletes to become first among others with inborn talents… Almost fifty years ago Herbert Simon and William Chase summed up a groundbreaking conclusion that is still echoing with importance: After Simon and Chase there have been numerous psychologists and authors testing this hypothesis and proving and disproving the rule of “The 10, 000 Hours“. For example, John Hayes researched the works of over 70 of the most famous classical composers and found that almost none of them did create a masterpiece before they have been composing for a minimum of 10, 000 hours. There were just a few exceptions and they were Shostakovich and Paganini, who took them only 9, 000 hours. In trading, it seems to be the same or at least really similar. I don’t know a lot of other traders, whom after an honest conversation have not shared with me that have spent years of losing money consistently before becoming profitable. In my trading career I remember just one trader who told me that was successful straight from the very beginning. He was sharing with me that it only took him 3 months on a simulator and with the help of his trading mentor, he became successful. He is an exception because in his case- he managed to save a lot of costly mistakes by following his mentor’s trading approach. But most traders are doing it alone and that is why it takes them such a long time. Trading, as any other highly competitive sport discipline, takes a lot of hours in front of the screens and practice. In a book that I recently read (Focus: The Hidden Driver of Excellence), Daniel Goleman reveals the complex truth behind the popular 10,000 rule: The words of Ericsson cannot be more true regarding the trading field. Professional traders know that going out of the comfort zone is what makes a difference in the long-run. Imagine you are doing the same trading mistake over and over again. The only way to get rid of your bad habits is to get out of your “comfort zone” and do something differently. Even if you are not sure where your mistake is, you should put all of your efforts into trying to find it. Only then and after long hours of practice, you would be able to become profitable. What matters in this case is not only the time invested in trading, but the quality of the time. It appears that even if you stay 20,000 hours in front of your screens, it won’t make a difference if you are doing the same mistakes repeatedly. It seems obvious and simple, but modern education is build on the premise of sheer time investment. That is why it is important to emphasize on the fact that success is “deliberate practice”, concentrated training with the sole aim of personal improvement, many times accompanied or guided by a professional and skilled coach or mentor.That is how I became successful myself- I have been mentored by one of the biggest and most successful traders in London. Before I had the chance to meet this important person to me, I was making too many mistakes- 80% of which I was not even aware of! That is such a striking number when I look back at it now. According to Goleman, what I have found also applies to other disciplines: That is completely in-line with trading field. You need an objective feedback from somebody, who can monitor your performance. Human beings tend to be subjective when it comes to measuring their own performance. That is why, it is crucial that you have a profitable trader helping you along the 10, 000-hours of trading journey. It is imperative that you are coached by a real professional or at least somebody with years of trading behind his back. No wonder that every world-class sports champion has a coach. If you keep on trading without a feedback from a proven profitable trader, you won’t be able to get to the very top. In the end, it seems that the trading strategy that you are using is not the most important element of becoming a master trader. It is the feedback that you receive from really experienced traders and the quality of the time invested in improving you own mistakes. Now stop thinking how good you are- start seeing how you can improve through concentrated trading effort. Some quick tips and facts My good friend Kirk Du Plessis from OptionAlpha lists few things to consider as you write down your expectations and goals. More traders lose more money than they make. The figures are a little off depending on who you talk to, but it is 80% to 90% (maybe more) who end up losers and leave the business altogether. Only a small percentage of retail traders are profitable. The numbers get even smaller if you look at a 3-5 year average which measures consistency. Don’t get discouraged, we all fell off the bike before we learned to ride it right? Paper trade first with a small amount of money. I always recommend members to paper trade everything first. This applies not only to new traders. Even if you have some experience with options, it always takes some time to get used to new strategies. This way you learn how to enter orders, adjust trades, and more importantly learn you’re your mistakes without losing real money. Then when you are ready to invest real money, keep it small. Prove yourself that you can make money with 10k, then increase it to 20k and so on, but do it gradually. You will have losing trades. Too many people quitting after a streak of 4-5 losing trades. Losing money is part of the game, the trick is to keep the losses as small as possible. Don’t expect to become financially independent. Don’t you think it’s completely unrealistic to expect a small account, say under $5,000, to generate consistent income to replace your regular job? I aim for many singles instead of few home runs. Those are all great quotes. I suggest remembering them when you get frustrated and overwhelmed by the amount of information and learning curve required to become a successful trader. Related Articles: Why Retail Investors Lose Money In The Stock Market Can you double your account every six months? How to Calculate ROI in Options Trading Performance Reporting: The Myths and The Reality Are You EMOTIONALLY Ready To Lose?

Learning how to win by learning how to lose in trading - just stop for a second and think about it: To most people it is, and that is why they end up being bad traders and consistently losing! To market professionals, it is a fact of life- losing is the cost of doing business in this field. If you can’t accept it, probably trading is not a field for you. Market professionals do not lose sleep if a given trading position ends up in a loss. In fact, they are concerned with far more important factors: A) what is the net result of ALL their trading efforts and B) where they will call it quits if some of their positions are moving against them. The Way to Approach the Market As can be seen from a few of my latest articles, I have been misled by the market on a few occasions. Let’s say the last DAX trade. I was expecting more buyers to push the price up and the German stock index to continue its climb. What happened was that buyers’ enthusiasm was extinguished by more sellers pushing the price down from the resistance area of 9800 and this led to a massive sell-out. In fact, the candle just after I did give the trading signal was an inside bar, which indicated the hesitance of the buyers. Even before that happened, I did spot a few worrying signs from the intraday charts that were hinting for a reversal. Learning how to win by learning how to lose is the key ingredient for a consistent and successful trading. In my experience, one thing I have learnt the hard way and it is the last sentence: Having learnt from my mistakes, I can bravely claim that the hardest thing still remains to cut losers fast. The second hardest is to let winners run for as long as possible, but without those two qualities no trader could ever succeed in the long-term. We all have heard about the large-scale cycles of nature: day follows night and summer follows fall… just like a cycle in the stock market. But not everybody appreciates how cycles at every scale (from atomic to astronomic) are the hidden rotors of the splendid phenomena of nature. Just like a Fibonacci sequence, they do tend to reveal a wonderful microcosm of repetitive patterns that drive major changes and rule trends. Two brilliant inventions– the internal-combustion gasoline engine (by Nikolaus Otto) and the diesel (by Rudolf Diesel) have changed the world. They both exploit cycles and just like in trading they follow a pattern- four strokes for the Otto’s engine and two strokes in the Diesel cycle before they come back to the initial stage. Just like a price action pattern, which has tested resistance two or four times and returns back to the initial level from where it started… numerous links could be found between nature and trading. Cycles tend to repeat themselves and the details of these cycles have been “optimised” by an R&D cycle of repetitions centuries old. At an absolutely different scale did our fathers discovered the efficacy of cycles in on the great advances of human prehistory: the role of repetition in manufacture. Take a stick and rub with it a stone and nothing happens. Take the same stick and rub the stone a hundred times and again- nothing. Start all over again and repeat the process a thousand times- you will have a sparkle. By accumulation of imperceptible increments, the process creates something completely new. You are probably either asking yourselves what is wrong with me or by this time you have already closed this page. In case you are still on the same page as me, I will continue with my description of trading when you are in a losing position- learning how to win by learning how to lose. This could be a completely novel way of seeing the market for a lot of you, but in my opinion even with the best trading strategy, if you don’t acknowledge the importance of objectivity, you are doomed. Ego, greed or fear– they don’t have place amongst winning traders. Although cycles do tend to repeat themselves as discussed earlier, they are sometimes very hard to discern. That is why, objective trading is the most important skill a trader can gain over the long-haul. You can’t make money in the long-term by strictly abiding to a trading strategy without having strict rules when to cut a losing position. That is what I have been sharing with all of my followers that have known me for a while. I would like to help traders become profitable and that is why I keep repeating that you can’t keep averaging down or throwing good money after bad. Traders keep repeating the same mistakes over and over again. What drives us to that destructive behavior: Traders in general think that if they pick a big winner, they are a genius, but if they pick a loser, they feel stupid. In my opinion, neither are right. In the case of a winning trade- it could have been because of a poor tactics, which turned out to be a home-run. In the case of a losing trade- it could have been a perfect trade, but bad on timing, even though you have followed a disciplined approach. Playing the market with the sole aim to brag about at cocktail parties is probably the worst way you can look at this business. Invest your time in getting the necessary knowledge and then wait for the “stars to align” in your direction before pulling the trigger. The destructiveness of the ego could be seen day after day. Go in any broker house and listen to the daily conversations that the sales department is having with their clients. You will hear clients talking to their account managers that they will sell their stock when it comes back to where they are even. You will hear traders making deposit after deposit in order to maintain their balance, so they are not margin called. You will see traders that keep on adding positions to a losing trade (averaging down) until they are broke. For ego-driven traders/investors, “break-even”=”not dumb”. All they can see is their winning or losing positions. They stop thinking objectively and forget that the most essential factor in making money in trading is looking it as a business. Winning How does emotions influence decision making in trading? Researchers involved with trading have made important progress toward understanding how specific emotions influence our trading judgements and objectivity. The research was based on how positive and negative moods affect objectivity in trading. For instance, it was found that a good mood increases the likelihood of a more biased judgements. On the other side, bad mood decreases this likelihood. A number of scholars found that bad moods can trigger more thoughtful processes that could reduce biases in judgement. A few scholars have even shown that sad people are more likely to be affected by obstacles in trading or a losing streak and thus will make worse trading decisions. On the other side, those ones in a happier mood would be more likely to make better trading decisions. Specific Emotions Emotions are the same across different cultures. Basic emotions such as happiness, sadness, fear and anger are the same for people from different cultures. Each of these are making traders from different cultures to respond to certain market conditions in the same (or very similar) way. For example, fear makes traders’ minds sensitive to risks. Sadness makes traders to focus on the self and motivates them to look for a change. Anger is a particular emotion. Although it is a negative emotion, it does share a lot with the features of happiness. Some of the shared factors are increased confidence and decreased sensitivity to risk. Therefore, for a trader it does not really matter if he/she is losing/winning. The feelings of anger or happiness are distorting his/her objectivity in the same way. Let’s take an example- I am going long the GBP/USD today. By the end of the week I am 1) up 200pips or 10,000GBP 2)down 200pips or 10,000GBP. Obviously in the first case, I would be extremely happy and ready to take even higher risk. In the second case, I would be really “neck-down” and will be looking to break-even as soon as possible, thus increasing the size of my next trade. In both cases, my reaction will come across as overconfident to market participants. In the first case, this would be due to my “happy mood” and in the second, it would be due to my “angry mood”. In both cases I am making a mistake. I am trading with blurred objectivity, which is prone to big trading mistakes. This leads us to the next point: The above explored example is very similar to the “endowment effect”. Endowment effect is described by the value traders place on a certain commodity they own. The value is greater if they own the commodity than if they don’t. As deduced by Bazerman&Moore: This study is confirming once again how traders are making decisions based on their emotions. It is imperative that you understand how your emotions are shaping your trading decisions, before you become a winner in this zero-sum game. Emotions are so much ingrained in our daily reflections that even the weather can influence our moods. For example, pollsters have gathered information that people report to be less satisfied with their lives on cloudy than on sunny days. It has been shown by researchers that this effects even extends to the stock market. Thus, prices are more likely to go up on a sunny day in New York than when it is cloudy. These final examples are key to understanding our own psyche better. If we want to achieve success in trading, more important than anything else is to first start with ourselves and building a trading plan. Experience has taught us that even with the most prone-to-errors system with the highest risk:reward ratio, there comes a moment when its reliability is tested. What I am trying to show my readers and the people who have taken my trading course is that a trading system is not the only essential factor for making the right trading decisions. A variety of factors play essential role, but understanding our own psychology is one of the crucial factors. What builds successful traders in this zero-sum game is more than discipline- it is a total control of our own feelings. About the author: Colibri Trader is a price action trader that is constantly looking for the apha. In the meantime, he does not forget to enjoy life, travel and even mentor other traders.