I have been trading futures, options and equities for around 24 years. As well as trading my own money I have traded money for banks and I have been a broker for private clients. Over the years I have been fascinated to discover the difference between winners and losers in this business.
Try to learn from the points I am about to give you.
1. Many traders trade without a plan. They do not define specific risk and profit objectives before trading. Even if they establish a plan, they “second guess” it and don’t stick to it, particularly if the trade is a loss. Consequently, they over trade and use their equity to the limit (are undercapitalised), which puts them in a squeeze and forces them to liquidate positions. Usually, they liquidate the good trades and keep the bad ones.
2. Many traders don’t realise the news they hear and read has, in many cases, already been discounted by the market. Often, new traders jump into a market based on a story in the morning paper; the market many times has already discounted the information.
3. After several profitable trades, many speculators become wild and un-conservative. They base their trades on hunches and long shots, rather than sound fundamental and technical reasoning, or put their money into one deal that “can’t fail.”
4. Traders often try to carry too big a position with too little capital, and trade too frequently for the size of the account.
5. They fail to predefine risk, add to a losing position, and fail to use stops.
6. They frequently have a directional bias; for example, always wanting to be long. A good trader should be happy to trade up or down.
7. Lack of experience in the market causes many traders to become emotionally and/or financially committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have made a mistake.
8. They over trade. Many new traders after opening a Financial Spread betting account are like a child with a new toy. They want to trade anything and everything. The new internet dealing offered by most bookmakers has made it even worse.
9. Many traders can’t (or don’t) take the small losses. They often stick with a losing trade until it really hurts, then take the loss. This is an undisciplined approach…a trader needs to develop and stick with a system. If you are following charts and a trendline or moving average is broken, you must stick to your rules.
“All through time, people have basically acted and re-acted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why formations and patterns re-occur on a constant basis.”
10. Many traders break a cardinal rule: “Cut losses short. Let profits run.” Emotion makes many traders hold a losing trade too long. Many traders don’t discipline themselves to take small losses and big gains.
The above points have been taking from Making Money From Financial Spread Trading 2010 Edition by Vince Stanzione. To learn more please go to www.fintrader.net