Are you constantly losing money in trading no matter what you do? You have tried candlestick patterns, chart patterns, trading indicators, but none of them affect your profits. Why?
Trading strategies and methods are not the reason for this. On the contrary, it is your trading habits that cause the most damage. So, here are 6 trading habits that cause you to suffer losses even if you don't realize it.
Are you trying to catch up with the market?
You are probably thinking: “The market has been going up for so many days in a row.” "I want to quickly place a buy order now before I miss out on more."
And what are you doing? Of course, you click on the buy button. Next, you know it happens.
And that's the price you pay for chasing the markets. Why is this happening?
The market moved too fast. He needs to rest before continuing the climb. When you buy near the highs, more often than not, the market is currently exhausted and is about to pull back (sometimes even reverse). So chasing the market is a bad idea.
Then what should be done? Always trade from a significant area.
Significant area refers to the area on your chart where buying pressure can push the price up (eg support and resistance levels , moving average , trend line , etc.).
So if the market is in an uptrend, support could be an area of value.
As you can see, trading from a meaningful area allows you to time your entry when the pullback is about to end. In addition, you can set your stop loss below support, which will give you a better risk/reward ratio on your trade.
You are using a fixed position size
Most traders are passionate about technical analysis , candlestick patterns, trading indicators, etc.
When you see “something good”, you quickly hit the “Buy” button without thinking about your position size, which is a big mistake. Why? Because without proper position sizing, your profits and losses will be random.
Here is an example:
Let's say you buy 1 standard lot of EUR/USD with a stop loss of 20 pips. How much can you lose? Well, that's a potential loss of $200 ($20 x $10 per pip). What if your stop loss is 100 pips? This is a potential loss of $1,000 (100 x $10 per pip).
You might be thinking, "My stop loss in pips will be permanent." “This way I can maintain consistent losses on every trade.”
What if you are trading on a different time frame where it makes no sense to use the same number of pips as the stop loss? For example, a 20 pip stop loss might work on the 5 minute time frame but not on the daily time frame. Or if you are trading a different currency pair with a different pip value? Do you understand my point of view?
The size of your losses must be the same for each trade. But your position size should be adjusted according to your stop loss size. A tighter stop loss allows you to increase your position size. A wider stop loss requires a smaller position size.
You average your losses
You bought 1 lot of EUR/USD at a price of 1.3000. Soon the price dropped 50 pips and you lost $500.
You think, “If I buy 1 more lot of EUR/USD, I can quickly break even if the price goes up 25 pips.”
And you buy another lot of EUR/USD at 1.2950. However, the EUR/USD pair then fell 100 pips, leaving you with a loss of $3,500.
If you had cut your loss from the start, it would have been a loss of just $500. But because you gave in to your emotions and averaged out your losses, the loss escalated to $3,500.
So the lesson is this: If the market shows you are wrong, exit the trade. Don't average out your losing trades because it can snowball into something that is almost impossible to recover from.
Some experienced traders average their losses to get a better average price. But this can only be done after you consider the risk management aspect. For example:
You can risk 0.3% of your account on your first position. 0.3% for your second position. Total 0.4% in the last position. So even if all 3 positions hit your stop loss, it's only a 1% loss of your account.
You hesitate to cut your losses
You buy 1 standard lot of GBP/USD at 1.4300 and have a stop loss at 1.4250. This means that if the price drops to 1.4250, you will exit the trade with a loss of $500 (or 50 pips). It's okay if you let the stop loss do its job.
However, you may be thinking, "I know the market will bounce back soon." "I'll look like an idiot if I sell right now and then watch the market turn up." "Perhaps I'll stay in the deal for a while longer."
What happens next? The market drops another 500 points. Eventually, the pain of losing becomes unbearable and you force yourself to close your position. And because of your hesitation, a loss of $500 grew into $5,500.
So the bottom line is this. Observe your stop loss. It is needed to protect your trading account.
Your fingers itch
This refers to opening a trade that is not part of your trading plan. You want the excitement of the markets and don't want to sit on the sidelines and do nothing. Or maybe you have no idea what you're doing, so you just open a trade when you feel like it.
It doesn't matter if it's a winning trade or a losing one, because your actions are inconsistent. And when your actions are inconsistent, you get an inconsistent set of results.
So how to solve this problem?
Develop a trading plan
A trading plan is a set of rules that guide you in your trading. You will know what market conditions to trade, when to enter and exit trades, and how to manage your trades from start to finish.
This allows you to perform a consistent set of actions over and over again, resulting in consistent results.
Make deviating from your trading plan painful
Just because you have a trading plan doesn't mean you won't get itchy fingers. Because you may lack the discipline to follow your trading plan, even if it works for you.
Solution? Give yourself an incentive. For example, be accountable to someone. This could be your spouse, friend, or someone you trust. Let them know when you deviate from your trading plan, you will be punished. The penalty could be something like this:
Donate $50 to your favorite charitable organization. Or washing dishes for a week. Do 100 pushups
You must be sure that not following a trading plan will cause you more pain than following it. Thus, your mind will strive to minimize the pain associated with the execution of your trading plan.
This means that your actions will become more consistent and you will get more consistent results in your trading.
You listen too much to others
Nowadays, you can easily access a ton of information from Telegram, websites, trading forums, etc. The problem is that this can harm your trading results.
Here is an example. Imagine someone posting a Tesla chart and explaining why it's optimistic. Under this post, there are 100 likes and a stream of comments agreeing with the analysis. Thus, you quickly buy Tesla shares in the hope of making a quick profit from them.
And now the most important thing, what if the price of Tesla falls by 30%?
Will you sell, hold the position, or buy more? You don't know because you are trading based on someone else's opinion.
You might be wondering, "Well, I'll just ask the original author for an update on Tesla." And he will tell you that he sold his position for a small loss or will not answer you at all.
Either way, you will lose. Therefore, never trade based on the opinions of others. They won't tell you how long they plan to hold a trade, when to cut a loss, and when to take a profit.
Ignore the noise around. Believe only in yourself.
Summing up
So here's what you've learned:
- Don't chase the market because that's when the market is going to pull back or reverse.
- Adjust your position size relative to your stop loss. So you can always risk the same dollar amount on every trade.
- Don't become losers. It is better to take a loss when it is still small and move on to the next trade.
- Cut your losses when the market has proven you wrong without any hesitation.
- Never trade out of boredom or itch syndrome.
- The opinion of others is noise. Ignore it. Focus on making your own decisions so that you are only responsible to yourself.