Your broker knows that most traders lose money. But do you know why? Here’s the top 3 reasons why most traders fail (avoid these trading mistakes and you will find yourself pulling profits instead of heartache out of the markets)…
What is most interesting about losing trading habits is how the majority of trading mistakes fall into one of three categories. By simply avoiding these three mistakes, you avoid 80% of the pitfalls. Would you like to know where most traders stumble?
Here are the big three:
Trading Mistake 1: Risking Too Much Per Trade
This is the quick way to the poor house. There is a simple mathematical result that is inevitable once a trader begins to risk too much on each trade. This result is bankruptcy (or a “blown account”). And it doesn’t matter if the trading system is a winner.
Think about that… you can do everything correctly – you can test your system, have a solid edge, execute your system flawlessly, but if you make the one trading mistake of risking too much on each trade, you are guaranteed to end up losing money.
This fact is lost on most traders… because most traders start out with a trading system, see that it works, and then get impatient. This means that instead of slowly building the trading account and making money over the long haul, impatient traders instead get sucked into destroying a perfectly viable trading system by risking too much.
I often wonder that if traders didn’t make money, and instead ended up making butter (as an example), would more traders be successful?
In other words, if traders were paid in butter instead of money, would it be easier to stick to your trading system rules and apply sound money management? And avoid trading mistakes?
My guess is that it would be infinitely easier simply because many traders would not get too greedy (after all, there is only so much butter that you can keep in your fridge).
If thinking about being paid in butter, rather than money is a bit too weird for you, consider the next trading mistake. Although it has to do with your thinking, it has nothing to do with butter…
Trading Mistake 2: Not Prepared (Thinking The Worst)
This may sound a little woo-woo, BUT…
Every battle is won before it’s ever fought.”
–Sun Tzu
One big issue that many traders have is thinking the wrong thoughts… Many traders anticipate the worst for their trades (“ohh, this ALWAYS happens to me!” or “Of course the Euro is gonna go through the roof, I just sold it!”).
These are the traders who say “I know the perfect trading system – just do the opposite of whatever I do!”
The problem with this fatalistic thinking is that it is often correct.
The negative crowd will lead the chorus with “But it’s realistic!” – and you know what? They are right, it is realistic… for them.
Don’t fall into this trap… your thoughts effect the world. Science now knows this. Experiments have shown that thinking can change how computers generate random numbers, and your thoughts can even reduce the number of crimes committed in a city (this has been duplicated many times).
The most successful traders plan for the worst (sound money management) and think about the best (big profits as a result of the trade).
And if you still need some convincing?? Do you still think your thoughts have no bearing on your life…
If the answer is “yes” – then try this thought experiment:
If you have a kid (and even if you don’t), imagine telling your child every day “you are worthless and you will never amount to anything… I never wanted you…”
Now, would you do this to your kid?
If not, ask yourself why you feel uncomfortable doing this…
Because if planting negative thoughts in your child is wrong because of how it may affect your child, then isn’t it true that positive thoughts may also create positive experiences in your life?
Trading Mistake 3: Taking On Too Much Pressure
The third trading mistake is trying to make too much happen with your trading. This can directly lead to making mistake 1 – risking too much per trade.
The typical trader looks at his expenses and thinks “ok, I need to make $5,000 a month to quit my job… so how many pips do I need to bag each month to cover my expenses?”
A much more profitable line of thinking is to calculate an average monthly return based on your trading account size. And this number should be obvious because it is what you have seen in you trading over the past 18 months.
Many traders try to “go pro” too quickly…
It is much easier to wait for your trading income to surpass your income from work (ideally, your trading income should double your working income) before “going pro.” This way you will have saved up several months of cushion income, and you will not have to change your trading style or risk management rules to live comfortably.