If you want to be successful in trading you must overcome the desires of the ego and the quest to be right. You must give up your own endless pursuit to prove you are a trading god and submit to the powers that are price and volume.
Here are some of the more common “sins” that will cost you money in the market until you learn to overcome them.
Perfectionism: There is no perfection in trading as far as making money on every trade or having a perfect system. All you can hope to be perfect at, is following your system, rules, and trading plan. A winning trade should be measured as one in which you followed all your preset guidelines. Even the best traders only average about a 50%-60% win rate at best over long periods of time. The key is having bigger winners than losers, not being perfect. Like in baseball where a .300 hitter can get into the hall of fame. A .500 trader in the market can become wealthy if his wins are much bigger than his losses.
Fear: Faith in your system is the only way to overcome your fear of trading. You must complete enough back testing on your system until you know that you have a valid edge over the market in the long term. You must see opportunity in trading and just accept that there will be possible losses. You must take your systems trade signals each time and if you can’t overcome your fear of loss and failure then perhaps trading is just not for you. Traders are entrepreneurs not employes they get paid only when successful there is no guaranteed paycheck.
Pride: We are not our trading account and staring at our profit and loss too much is a major detriment in one’s trading. Traders must cut losses at their predetermined stop, not pridefully hang on trying to prove they are right. We must separate ourselves from the trading. A person’s value is not tied to a trade or performance record. If we followed our system then we can’t view that as a personal loss. The market was just not conducive to our system that we followed with discipline.
Impatience: Wait, take your entry signal when it is time and not a tick before your system triggers the trade. It’s important to let our profits run as far as they will go and not prematurely take them until the trend has run it’s course. We need to give our trades room to breathe and not cut our loss until the system confirms we are wrong and it is time.
Greed: Traders should not chase a trade when it is to late. We must take our profits off the table when it is time and we should never allow a winner to turn into a loser. If this happens you have nobody else to blame but your greed. Over trading and trying to make more money when our system does not say it is time is born of greed and usually ends with a negative p&l statement.
Anger: Do not get mad at yourself. Learn from your mistakes and move on. Every mistake gets you closer to learning what you need to do to become consistently profitable. Do not get mad at the “market” it is a voting machine and not an entity. Accept your losses and begin again.
Recklessness: Trading too big of a position size is risky, reckless, and completely unnecessary. Only enter appropriate sized trades with preplanned stop losses and then trailing stops to lock in profits while they are there. Follow your system and rules and if you find yourself hoping and wishing the market would stop moving against you instead of making decisions based on facts, you should exit that trade immediately.
We need to first realize what trading “sins” we are guilty of, then we can decide to repent and no longer commit them.
The good trader will realize that any single trade is only one in a long string of other trades and will move on to the next trade knowing that his system will outperform in the long term. He will have complete faith in his trading methodology and risk management. He walks by faith in his systems edge not by the last trade that lost, but by the knowing that he’s back tested his system enough to know the long term outcome.
The good trader is humble and knows that he can not out smart the whole market and that trying to do so is futile. His system simply gives him one small advantage that he can exploit time and time again if he’s patient and waits for the right entry signal. He is happy with the profits he earns and has no desire to put on a huge trade and swing for the fences. He does not get angry because he has no one to get angry at. He is very careful in his trading and follows his trading plan 100%. The stock market giveth and the stock market taketh away, he loves every minute he gets to participate in the financial system that is the stock market.