One of the ways I coach myself each day before trading begins is to say to myself “Don’t do anything stupid”. When I quit doing stupid things that is when I started being consistently profitable year after year.  You can do all your homework for trading, you can write your trading plan, you can have defined risk management parameters then go out and do something stupid in live trading when the markets are moving and you decide you are more clever than the markets or your own research. When I follow my plan and my parameters for entries, exits, and risk management and I lose money because the market moves against me, it does not bother me much. But when I lose money becasue I fail to follow my own plan that concerns me deeply. The longer I trade the less I have any issues with breaking  my trading discipline, the market has punished me and taught me to stay on track. I listen now, I have learned my lessons by losing thousands of dollars at a time. Now I follow my plan and when I am wrong I generally only lose hundreds of dollars with no regrets. New traders underestimate the power of emotions and ego to make a good trader do stupid things.

  1. When you take a position that puts more than 2% of your account at risk in one trade, that is not smart.
  2. When you abandon your trading plan out of boredom and start trading freestyle believing that you know what you are doing.
  3. When you suddenly leave your watch list and trade a stock, option, future, currency, or commodity that you are not familiar with and have done no research on.
  4. You begin to trade aggressively to get back lost capital in one day.
  5. You open to many positions at one time and expose your trading account to over 12% of risk at any one time.
  6. Your trading plan is to ask the advice of others.
  7. You believe it is too late to get out of a losing trade and instead rely on hope for it to come back in your favor.
  8. You are very sick and do not feel well but force yourself to trade anyway.
  9. You are trading poorly but keep trading bigger and bigger instead of smaller and smaller.
  10. You take trades before your entry signal.

Becoming disciplined, controlling your emotions, and keeping your ego in check are three things that prevent traders from doing anything stupid.