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Jeffrey Kennedy of the Elliott Wave Video Crash Course discusses the major mistakes that often keep new traders from becoming profitable.

If you've been trading for a long time, you no doubt have felt like a monstrous, invisible hand sometimes reaches into your trading account and takes out money. It doesn't seem to matter how many books you buy, how many seminars you attend, or how many hours you spend analyzing price charts, you just can't seem to prevent that invisible hand from depleting your trading account funds.

That brings us to the question, “Why do traders lose?” Or maybe we should ask, "How do you stop the invisible hand?"

Whether you are a seasoned professional or just thinking about opening your first trading account, the ability to stop the hand is proportional to how well you understand and overcome the five “fatal flaws” of trading. Each fatal flaw represents a finger on the invisible hand that wreaks havoc with your trading account.

Fatal Flaw 1: Lack of Methodology

If you aim to be a consistently successful trader, then you must have a defined trading methodology, which is simply a clear and concise way of looking at markets. Guessing or going by gut instinct won't work over the long run.

If you don't have a defined trading methodology, then you don't have a way to know what constitutes a buy or sell signal. Moreover, you can't even consistently identify the trend correctly.

How to overcome this fatal flaw? Write down your methodology. Define in writing what your analytical tools are, and, more importantly, how you use them.

It doesn't matter whether you use the Wave Principle, point and figure charts, Stochastics, RSI, or a combination of all of the above. What does matter is that you actually take the effort to define it (i.e., what constitutes a buy, a sell, your trailing stop, and instructions on exiting a position).
And the best hint I can give you regarding developing a defined trading methodology is this: If you can't fit it on the back of a business card, it's probably too complicated.

See related: Great Traders Have an Edge—Do You?

Fatal Flaw 2: Lack of Discipline
 
When you have clearly outlined and identified your trading methodology, then you must have the discipline to follow your system. A lack of discipline in this regard is the second fatal flaw.

If the way you view a price chart or evaluate a potential trade set-up is different from how you did it a month ago, then you have either not identified your methodology, or you lack the discipline to follow the methodology you have identified.

The formula for success is to consistently apply a proven methodology. So the best advice I can give you to overcome a lack of discipline is to define a trading methodology that works best for you and follow it religiously.

NEXT: Having Unrealistic Expectations

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