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In today’s episode, you’ll discover 5 trading habits that destroy your trading results.
So tune in right now…
Resources
How Long Does It Take to Become a Consistently Profitable Trader?
The 7 Biggest Reasons Why Traders Fail
Transcript
Hey, hey, what’s up my friend? In today’s episode, I want to talk about 5 trading habits that keep you poor without you realizing.
Bad habit #1: Chasing the markets
I know you’ve experienced this before, you opened your charts and you saw a huge, bullish candle and you thought it’s time to enter the trade and capture that little bit of momentum.
“I know the market is going higher, I’m just going to enter the trade quickly and book some quick profits.” And so you chased the market.
But the moment you hit the buy button, somehow the market is watching and it knows that you’ve just entered the trade and it closes as a big bearish engulfing pattern.
Then the market starts reversing against you and you’re sitting in the red and your account is in the red, while you’re wondering what just happened there.
Here’s the thing, don’t chase the markets. Usually when you chase the market, and you feel that this is the best time to enter the market else you’ll miss out on the next wave of the move, that’s usually the worst time to enter a market.
Because that’s where the market is ready to make a pullback or even worse, make a full-blown reversal. It’s better to sit on your hands and do nothing whenever you have that thought of chasing the markets.
Evaluate and ask yourself, am I trading near an area of value? Is there a logical place for me to set my stop loss? If the answer is no, then don’t place the trade. That’s bad habit number one – chasing the markets.
Bad habit #2: Fixed position size
This happens to a lot of new traders there. They’re lazy to learn the math about trading. Whenever they put on a trade, they just go with a fixed lot size, like 1 lot. That’s easy. Just press the number one to get 1 lot.
What they don’t know is that one lot equals to 100,000 units in the FX market. For example, if you’re having 10 pips stop loss on 1 lot of EUR/USD, it’s about a stop loss of $100. If you hit 10 pips stop loss, that loss of $100 is something that probably most of you can deal with.
But when you trade, let’s say on the higher timeframe, or when your stop loss gets wider, and you still use that same 1 lot fixed position size, your losses will increase accordingly. If you have 50 pips stop loss on 1 lot of EUR/USD, that’s a potential loss of $500.
And if you have a 200 pips stop loss, that’s a potential loss of $2,000. Here’s the deal, you can’t be using fixed lot sizes every single time because the distance of your stop loss is always changing, depending on the timeframe that you’re trading.
You have to adjust your position size such that every time you put on a trade, even if it’s a loss, that loss is always a consistently fixed percentage of your account, be it 1% or 2%. You must adjust your position size accordingly to the size of your stop loss.
That’s why you must not use a fixed position size because that means that whenever the size of your stop loss changes, your losses are going to change. And when the size of the losses change, you’re going have inconsistent results.
You have to be consistent with your losses and make sure that is always a constant fraction of your trading account. And to accomplish that your position size must be dynamic, it has to shift according to the size of your stop loss instead of the other way around.
Bad habit #3: No proper trading plan
Imagine that you enter a trade, maybe due to fundamental news, a tip, or a rumour, etc. You buy but you don’t have a plan. You just buy hoping that the price goes up.
Let’s say the price really does go up. But you say to yourself, “I plan to sell when the market has caught up enough or when it has given me enough profits.” Well, guess what? You won’t sell when the market has moved in your favour.
Trust me on that, I have experienced that many times myself. When the market goes up, you will think it will go up even higher. You won’t sell because the profits on your screen are green. Why do you want to sell, just take a small gain when the market could move up even higher?
So you hold onto that trade. And when do you sell? I’ll tell you when you’ll sell because I have done it many times in the past. You will only sell when the market goes against you. When your profits get smaller and smaller and it turns red.
And when it’s red, you can’t take it anymore, you exit the trade for a loss and that’s when you will sell.
My point is that you must have a plan before you enter a trade, to know where you’re going to get out of the trade if the market moves in your favour or when the market moves against you.
If you don’t have that plan, you have no business putting on that trade because you will only sell it at the worst possible moment, at the lowest right before the market is about to rebound higher.
So don’t make this mistake. Break this habit because you must have a plan. Don’t trade without a plan.
Bad habit #4: Adjusting your stop loss
You might have a plan and a stop loss in place. But the market seems to always know where your stop losses are.
As the market approaches your stop loss, you would shift your stop loss lower so that the market doesn’t trigger your stop loss.
Well, guess what? Yes, you do avoid getting stopped out. But if the market now moves further against you, that loss is now amplified even more than what you had planned earlier.
That defeats the purpose of trying to contain your losses. Because when you adjust your stop loss, the loss that you’ve planned ahead of time has now increased in size. If the market now hits your new stop loss level, your loss is amplified.
If your losses are not constant nor controlled, then it’s going to be difficult for you to be a profitable trader because sometimes your losses are big, sometimes they’re small, and it’s hard to get consistency in your trading.
And last thing…
Bad habit #5: Itchy fingers
Some of you might have this bad habit. Just one tiny action from the market and you’ll be thinking…
“Oh man, I want to trade the markets now. Let me fire up the charts. Let me look through the markets. Let me look through the timeframe and find some trading opportunity. Let me find some excitement. Where is the money now?”
Here’s the thing, if you are looking for action or if you have itchy fingers, then you will simply enter trades based on your emotions, based on what you are seeing at that point and based on how you’re feeling at that point.
What’s going to happen is that whenever you open up a chart, when you flick through the chart and the different timeframes, you will be having different feelings, different emotions, and your actions will be different every single time.
One moment you trade the breakout, one moment you trade pullback, another moment you trade reversals. In the grand scheme of things, your actions are going to be inconsistent and when you have an inconsistent set of actions, you’ll get an inconsistent set of results.
This will hurt your trading in the long run. Be aware of all these trading habits that hurt you more than you think.
Here’s a quick recap…
Recap
- Don’t chase the markets
- Don’t use a fixed position size
- Don’t trade without a plan
- Don’t keep adjusting your stop loss further against you just because you don’t want to take a loss
- Avoid itchy fingers – stop looking for action in the markets
With that said, I wish you good luck and good trading. I will talk to you soon.