Forex Day Trading is not an easy job. Contrary to what many people believe Trading is as much a psychology game with yourself as it is a methodical, statistical process. Here are five common mistakes that both new Traders and seasoned veterans often make.
1. Not Setting a Stop Loss
Trading without a stop loss is equivalent to rock climbing without any safety equipment. There is a chance that for some time you might do fine and have success but one day your luck will run out and lets just say the ending won’t be pretty.
The problem with not setting a stop loss is that people have a tenancy to not be able to close the position in a loss scenario and even if they have a mental stop loss this can often be overlooked leading to potential account wiping trades.
2. Revenge Trading
Many years ago I remember talking to a Trader who was actually quite successful with some decent long term results. We spent many months talking about trades and sharing certain interesting discoveries about the market. Then one day he went silent and we knew instantly something had gone wrong. We didn’t hear back from him for many months but as it turned out he had a few losing trades over a week long period and decided to up his position sizing to try and gain back his account balance to where it was a week previously. His Trading instantly went from a methodical process to getting revenge and as he continued to double up so did his losses until he blew up his main account. As we mentioned Trading is as much of a mental game as it is a technical, statistical exercise so keeping a strong grip on your emotions is paramount to being successful long term.
3. Having Unrealistic Expectations
This is one of the most common problems we see when training new students. The idea of having goals and achieving them keeps us motivated and means we keep on track and focused. The problem is in Trading is that setting realistic goals that work for you can sometimes be tough. Making 20-50 pips each day sounds awesome but is it possible? When setting your own expectations remember that the market doesn’t work on your time frame, sometimes there will be plenty of trading opportunities and other times their will be none. It’s being able to hold yourself back from unrealistic expectations and taking concrete steps to enable you to achieve smaller more achievable goals that will set you up for success.
4. Trading Without a Plan or Journaling
Many of you who have done our course know that we follow our Trading strategy PRECIC. The reasons we put this system together was to keep our Trading more consistent and help us avoid placing poorly thought out trades. Just like when writing a good essay at school you need a plan before you jump into the execution. A Trade plan can be as simple as outlining your entry and exit conditions and risk management rules to specifically snapshotting a before and after image of your trades so you can go back and learn from your successes and failures at the end of a month. Without a trade plan you often will get lost in the emotions of a live trade in the market and forget what your supposed to do, so start planning Today.
5. Letting Losing Trades Run & Cutting Your Winning Trades Short
This one is an account blower and all traders make this mistake at some point. You might have a trade in the markets with a stop loss and think I’ve set a limit on my losses so nothing can be worse than the maximum risk i’ve calculated. The problem is the trade suddenly might start coming back on you and shows you all the clear reversal signs which you choose to ignore as you can’t take the small loss and you start hoping it turns around. Worse yet you start to move your stop loss lower to give the trade more room leading to a potential loss you can’t take and a blown account balance. Conversely you have a great trade plan and are currently up on your position but because you have recently taken several losses you decide to take the profit and get a win. Does this sound like a recipe for long term success?
If you have committed some of these mistakes, don’t feel bad. These mistakes are so common almost every single Trader ever has committed at least half of them at some point during their career.
Author: Thomas Atkinson, co-founder of FX Evolution