5 Pitfalls to Avoid for Successful Trading
04/01/2014 6:00 am EST
One thing I have learned in my years of trading is that your number one enemy and hurdle to your dreams of success can be—and usually is—yourself, says Omar Eltoukhy of DTSForexSystem.com.
Let's face it...Trading is tough!! Impossible?? No. Difficult?? Yes. It takes a lot of work, failure, and experience to make it. Yes, this "Shangri La" of profitable, consistent trading is attainable and reachable, but the path to get there is no cakewalk. Anyone who tells you otherwise is either lying to you or hasn't tried it themselves.
That being said, many times the difference between success and failure simply involves NOT doing things to destroy the outcome. Avoiding things that hurt our chances of success is certainly a great idea, right? So why do we continue to do them? I think it’s because we may not even know we are doing something detrimental to our trading approach. I have attempted to compile a short list of common practices that might begin well-intentioned, but end up working against us in the end. How do I know? Because I have done every single one of the “self-sabotage” items listed. You may recognize one or two or all of them from your own experience.
Addiction/Obsession: Yes trading can be oh so exciting! I still love the whole idea of pulling the trigger on a boatload of money and competing globally to be “right” with the reward of healthy monetary gains if I am. But when I started, I became way too enamored with trading. It became so engrossing, it engulfed my life. I avoided social events, friends, family, and beloved sleep just to stay in front of the market. The result? Spending so much time in front of the computer trying to trade had two negative impacts: The first was that since I was spending so much time in front of the computer it became the center of my life. I paid no attention to anything else and relationships, housework, and everything I was working so hard to enjoy. I became a hermit and lost that important balance that leads to a happy life. The second impact was that since I was so addicted to trading, that I couldn’t step away and avoid bad markets. I traded when I shouldn’t have because I just couldn’t stop and that cost me dearly. Sure, trading is great, and you will learn the most when you are interested in something, but making it the center of your life is not a good idea. Take a step back and you can see the forest instead of the trees and remember the pursuit of trading is more than the trading itself; it’s a better quality of life.
Over-Trading: This goes hand in hand with #1. In the difficult venture of trading consistently for profit, making more trades does not equal more profits! I learned the hard way, that attempting to take every single setup does not turn a good system into a monster moneymaker. Over-trading exposes your capital to the market way too often, places too much of your money at risk by having too many orders open at once, and makes you not take the time for each order to do the proper analysis. Instead of trading 15 pairs and getting 20-30 trades per day, I have found focusing on less pairs has equated to more profit. The reason is that now each trade requires lots of checks to get off the ground, and by slowing things down there is more chance you will only choose the very best trades. Also, managing so many trades at once can be anywhere from stressful to impossible. Lastly, by only taking a few trades, you open yourself up to much less risk if the market is bad. After all, there really are plenty of times where we should just stay out and wait until the next week. By constantly placing trades, we might miss the signals to stay on the sidelines.
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System Jumping: Oh boy, was I guilty of this one. When I started trading I was sure it was just a matter of finding the right system for me to make money. I pretty much tried every system that came into my inbox. I bought EAs, manual systems, signal services…you name it! All in the search for the “holy grail” of trading. What did I find after losing tons of money in both cost of systems and to my account? That the system only plays a part in the goal of great trading. Sure it’s important to have great tools, but it’s even more important to stick with them and truly understand them. Knowing the difference between whether it was the system, market, or you as a trader causing the loss is impossible to determine if you are constantly going from one system to the next. Sure it always seems the “latest and greatest” release will finally be the answer to your trading woes. But in reality, the work must come from within. After all, a great trader can make a bad system work better and a bad trader can destroy a good system. Sticking to one system and truly understanding it can give you confidence both when and how to use it. I think it’s much better to stick with a bad system until you know everything, rather than going from one good system to the next. By sticking with the bad system, we can learn from the consistent mistakes. On the other hand, jumping around is likely to produce results we just can’t analyze.
The Blame Game: Yeah, we have all done this at some point. We blame our bad trading on the market, the system we are using, luck, our broker or even “the man holding us down” in the sense that the whole deal is rigged. One thing we rarely blame is ourselves. Interestingly enough, that’s usually the problem. But due to pride and a whole host of other reasons, we simply cannot be the problem. One of the fastest ways out of the red and into good trading is to own your own trading! Yeah, you are the captain! It’s your decisions that matter! Don’t depend on anyone else and don’t blame anyone else. Even if someone gave you a stinker of a recommendation and it lost, it's still your fault! After all, you didn’t have to take the trade, right? Why are you letting others make your decisions? The best way is to recognize our roles in the trading game, and develop discipline, our education, and improve our skills. Be in control, the buck must stop with you.
Call of Duty: Too many times, we approach trading in a very cavalier way, like it’s a video game. Sure, the colors can be pretty, and all the movement exciting, but if you don’t take it seriously, you won’t get serious gains or results. Many times we use trading as a way to relieve stress, entertain ourselves, or for the “rush.” Sure, I’m not knocking that approach…if you don’t care about making money. Remember, the traders you are up against include people who are very dedicated to winning. Be one of them. Why? Because only about 5-10% of traders are profitable. The difference is approach. We all trade the same market. People who take trading as seriously as brain surgery are likely to learn more, trade less, and be more disciplined. This is not a “fun pastime” if you want to make money. Work on a measured approach that includes written rules for every aspect of trading. Also, psychology plays a part. If you don’t come to the market with a clear head, focused on trading, you are likely to make poorer decisions than if you had. Keep your head in the game, but don’t treat it like one.
One thing I have learned in my years of trading is that your number one enemy and hurdle to your dreams of success can be and usually is yourself. By avoiding these five pitfalls, you can turn your attention to carefully selecting that great setup, and having the confidence to know where your trading is going, now and in the future.
By Omar Eltoukhy of DTSForexSystem.com