The primary thing that trips up the vast majority of traders and investors is not the math, the markets, or a trend. What causes the 90% to end up unprofitable in the long run is mental errors. Errors caused by fear, ego, greed, and a lack of discipline to create a plan or to follow it if they do.
Here are the 10 primary mental errors traders and investors make.
- They hold on to preconceived beliefs about the direction of the market with no planned signal that will show them they are wrong. This is an ego error when we think we’re smarter than the market.
- Taking a huge position size that will cause a huge loss if wrong or a huge win if right. This is greed that only sees the upside and not the downside.
- Buying a position late in a move when the risk/reward is not favorable is due to the fear of missing out on a profit.
- Trading with no plan is due to laziness and possibly arrogance.
- Not taking a stop loss when it is triggered is usually due to the fear of locking in a loss.
- Abandoning a plan is due to fear of a draw down or a lack of discipline.
- The inability to manage emotions as the trader or investor sees money enter and leave their account is usually due to stress so profound that they can not trade.
- Being wrong and staying wrong about a trade is due to stubbornness and denial.
- Entering a trade without a good safety margin with a stop loss or a great entry is simply gambling. Trading without a set up is the error of a gambling impulse going in with the odds against them in hopes of easy money.
- Asking others for opinions about trades shows our own lack of discipline to have a plan, a system, and to have done our own homework.