7 habits of highly incompetent traders

So, over the next few weeks we’re going to be looking at effective habits for traders.

Any long term result in life – including successful trading – will almost certainly come from a build-up of the many small steps and actions you take along the way.

But I believe a common mistake many people make these days is to have too much of a results-based focus…

They’ll have their big end-goal dangling in front of them like a massive carrot… “Make a million pounds in the next 5 years,” or “Own a yacht moored in the South of France.”

They might even have a scrapbook of pictures and photos to help them visualise their target.

But you don’t suddenly jump from NOT having a million pounds to having a million pounds.

You can’t snap your fingers and make it happen. So the final result you want is really pretty much out of your control.

But what you CAN control and influence is the process you are using in an effort to arrive at your goal.

And by that I mean the small actions and micro-steps you take on a regular basis. Or in other words: your habits.

So instead of dreaming about fast cars and expensive watches, bulging bank balances and fat trading accounts, or whatever else it is they want, I don’t know why more people don’t take a closer look at what they are actually doing (or not doing as may be the case!) in order to actually make it happen.

But it’s easy to overlook the small stuff, isn’t it?

It’s not obvious that the seemingly unimportant things you do day-to-day determine where you end up months or years down the line.

But that’s where you need to make a start. You need to look at the tiny and insignificant things you’re doing everyday – even down to the way you think about the markets – in order to start culling bad habits and installing better ones… ones that have the greatest probability of actually getting you to your goal.

So take a look at the list below… see if any of these common habits that trip traders up are holding you back too.

The first step to improvement is getting an accurate overview of where things stand today. Only then can we look at ‘renovating’ and improving your processes.

7 Habits of Highly Incompetent Traders

1) They don’t respect the market. Headstrong traders make the mistake of thinking perfectly aligned set-ups can’t fail. Well they can!

Never underestimate the market’s fickle nature; no single trading event comes with a guarantee.

Take whatever hand is dealt to you on each trade with gratitude. It’s all just a numbers game anyway, so recognise that 5 out of 10 otherwise perfect setups can result in losses yet you can STILL walk away with big profits.

2) They trade for accuracy instead of consistency Get talking to a trader struggling with his results and I can almost guarantee he’ll give himself away by the things he says…

Sometimes he’ll be more interested in being proved ‘right’ than in making money. Bragging rights are nice – “yeah, I win on 90% of my trades” – but that’s only part of the picture. It’s how much money those trades bank that’s important! You can ‘win’ on 9 trades out of 10 and still lose money!

3) They have unrealistic expectations. Yes, it IS possible to start with a tiny account and balloon it into six figures inside 12 months. You’ll hear stories of traders doing it and they are true (many of them, anyway!).

But these are tales of the spectacular rather than the normal. Instead of chasing the improbable why not prepare to get rich a little more slowly? Stay in the game for the long term and enjoy the journey as you go.

4) They give up too soon. An offshoot of having unrealistic expectations is that many traders give up far too easily. To make progress in any new skill – especially one as potentially lucrative as trading – it’s best to give yourself proper chance to learn the ropes.

So instead of aiming for incredible profits straight out of the gate, shoot for a discipline based goal instead: “I will take each and every trade presented by my strategy for at least 60 days before reviewing my performance”.

It’s a good way to remove the distraction of monetary goals and focus on improving your processes instead.

5) They overtrade. This heading covers a number of sins…

The trader who increases his usual volume size in an attempt to squeeze maximum profit from a particular trade is overtrading… The trader who takes the odd additional punt because the market ‘looks like it’s going up’ is overtrading… The trader who launches a frenzied revenge campaign against the market following a single losing trade is DEFINITELY overtrading.

And a common one…

The trader who trades to relieve his itchy trigger finger is overtrading. He might simply feel bored from watching a flat, listless market. Or he might be responding to a misplaced need to proactively ‘feel busy’. Taking constant action might be an admirable trait in the outside world but it’s not really relevant when it comes to trading.

6) They don’t manage risk properly. Accurate position sizing is so important in order to achieve consistent results in line with what you’d expect from the profitable edge of your system.

Ideally, you’d risk an equal amount of your account on each trade. If you always risk an equal amount of pips on every trade you can use a fixed stake – £1 per pip, for example. But if your trades risk a different amount of pips each time, you’d need to adjust your staking accordingly.

For example: Trade A might have a stop loss of 50 pips and be staked at £1 per pip. But trade B, with a stop loss of 100 pips, would be staked at 50p per pip in order to assume the same £50 net risk.

It would be no good using level stakes of £1 per pip on both trades because the risk on trade B would be £100. Twice as much as trade A!

7) They are not willing to adapt to changes in market conditions. You can only trade what you see on the chart i.e. what is happening in the market today.

Be aware of historical activity, it does have a habit of repeating, but understand that the tone of the market can change week to week, month to month, season to season. So don’t expect the same set of tactics to carry on working in the same way for evermore.

It’s a mistake to expect the markets not to cycle through their different phases.

It means you might need to adjust your strategy to take changes in conditions into account from time to time (low volatility summer markets for example) and you might even have separate strategies on standby ready to deal directly with different market conditions.                                                                                    – – –

Be Prepared: Market Moving Data Coming This Week (London Time):

Wednesday 15th February:
09:30     GBP       Average Earnings Index & Claimant count change
13:30     USD       Core CPI
13:30     USD       Retail Sales
15:00     USD       Fed chair Yellen testifies
15:30     USD       Crude Oil Inventories

Thursday 16th February:
13:30     USD       Building Permits
13:30     USD       Philly Fed

Friday 17th February:
09:30     GBP       Retail Sales

Monday 20th February:
All Day  USD       President’s Day Holiday

Tuesday 21st February:
08:30     EUR        German Manufacturing PMI

So have a think about those common mistakes traders make. Do you think there’s scope for clearing any from your own trading approach?

Email over your thoughts and conclusions, let me know what you’ve uncovered: rich@tradersnest.com

Trade safely and I’ll catch up with next time.

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