As a trader, you are solely responsible for your day trading actions and behavior. Your day trading success depends on how you act while trading. Here are 3 trading problems that ensure failure. Fortunately, they are all within the control of
the trader and can be corrected:
Trading Problem #1: Trading Without A Game Plan
Traders who come into the market without a game plan are immediately at a loss. We are not talking about a trading plan,
but a game plan. Your trading plan will specify trade setup criteria, risk parameters, markets and time frames traded, and
the like. Your game plan tells you how you will implement your trading plan in the current market.
In preparing a solid game plan you will have thoroughly assessed current market conditions. The task of the game plan is
to identify where the next trade setup is likely to occur, based on your assessment. If, for example, you are a day trader
and the current trend has been up with no evidence of concentrated selling, then you might look to buy morning weakness
against a key support level. Having a game plan gives you strategic points at which you look for a trade. Even if the
market acts differently from what you expect, you have a reference against which to judge the market action. Having no
game plan increases the odds you will be making random trades. Construct a game plan every night as part of your nightly
Trading Problem #2: Trading With Too Much Size
Novice traders see a market move and think, “If I traded this with 10 more contracts, I would have made real money!”
Thoughts like this bring a trader downhill very fast.
Professional traders keep their risk under 2.5% for each trade. The reason is they have a healthy respect for the
probabilistic nature of trading. Even when a trade setup looks perfect, there is still a distinct probability it will
fail. How much can be lost and how best to manage the risk is the prime consideration for the pro. The novice’s attention
is on how much profit will be made. Trading too much size places the trader well outside reasonable risk parameters. Any
mistake can be account-damaging. Learn money management and set a responsible risk threshold you do not violate while
Trading Problem #3: Adding To A Losing Trade
This is a seriously poor trading behavior. Called “averaging down,” you add to the position and average the entry price
down as a market goes against your original position. The idea is that with a lower average cost of the trade, you can
exit gracefully when it reverses or pulls back. This works many times, but lulls the trader into the belief that a losing
trade or mistake can always be corrected. Not true.
A trading friend routinely “averaged down” when he got into trouble in a trade. One day, the market really went against
him. He continued to add to a losing position, thinking he would fix his error. He added so many losing contracts that his
broker finally had to step in and close the position. He lost over $300,000 in this one trade in one day. Avoid this very
poor habit by cutting losing trades quickly.
These and other trading problems unnecessarily complicate a trader’s life. You may not be in control of the market, but
you are in control of how you act.