Awareness is the first step towards improvement and making mistakes is not bad at all and it is part of the process, but when mistakes are made repeatedly, bad and unprofitable habits are formed. The more bad behaviour you can eliminate from your trading, the better.
I will divide them into few categories:
What Traders Say,
Risk & Money Management,
General Trading Mistakes
1. Changing your trading strategy after 5 losing trades
Losing is unavoidable and even the best traders will regularly realize losses. Changing your approach after a few losing trades sets you back on the learning curve. Stick to your approach, every losing streak will end.
2. Not expecting the unexpected
A sudden market collapse, an unexpected news release or the loss of your internet connection can happen at any minute. Be prepared by having a fixed stop loss in place. If a single trade could wipe out your trading account, you have not done your homework as a trader.
3. Not keeping track of relevant news releases
Denying the importance of news, even if you are a purely technical trader, you do not have to trade the news, but you have to be aware of them at any point in time.
4. Not being prepared
Do you just fire up your computer, start your trading software and dive into the charts? Trader needs to have a detailed trading plan for the upcoming trading session.
5. Not doing a post-trading analysis
What you do after your trading session is over determines your future success as a trader. The professional traders analyze their trades, crunch data and plan for the next day.
6. Not using a trading journal
One of the surest signs that you do not have a future as a trader is when you do not have a trading journal and claim that you do not need one.
7. Not fully learning one method
The consistent losing retail trader jumps from one method to the next, hoping to stumble over the Holy Grail. You have to accept that there is no superior trading method and that it comes down to your abilities to make a trading strategy work.
8. Failing to adapt to changing markets
Once you find a way to consistently make money trading, the work does not end. Financial markets are ever changing and evolving animal. If you fail to adapt, you will be out of business shortly after
9. Letting hindsight influence your trading
Amateur traders watch a trade after they have exited it and beat themselves up if they have entered too early. Other times they try to find reasons why a trade was a loser to change their entire trading method. The professional trader collects data and makes educated decisions based on a large enough sample size.
10. Not understanding the difference between long term and short term perspective
Over the short term, anything can happen. You cannot control the outcome of your trades and you can certainly not predict the outcome of your next two, three or even ten trades. But over the long term, that doesn't even matter. If you have a trading strategy that has a positive expectancy and follow it religiously, the only possible outcome is making money.
What Traders Say
11. A smaller stop loss means less risk
The distance of your stop loss has no relation to the potential risk of your trade. Risk is measured in a potential loss of your trading account. You have to set the stop distance in relation to the take profit distance and the trade size to get an idea of potential risk.
12. You measure performance in pips
A sure sign that traders don’t know what they are talking about is when they start comparing profits in terms of pips. Pip measurements are totally random and have no value of expressing performance.
13. Claiming that win rate and risk: reward ratios are useless
Whereas by himself or herself a win rate or a risk: reward ratio has no value, together they are all a trader needs in order to determine his future trading performance. The combination of risk: reward ratio and win rate is one of the most powerful concepts in trading.
14. Making claims such as: “Make up to $2000 per day trading”
Talking about absolute numbers in trading is an easy sign that someone is trying to scam you. A possible return can only be stated in percentages. However, without talking about the risk involved, stating potential profits is a pointless and dangerous thing.
15. Blaming HFT and algorithmic trading for your inability to make money
HFT and algorithms are not the reason why you cannot make money. High Frequency Trading and trading algorithms are nothing but new technologies that change the way the game is being played. Traders were scared that the telephone, computers and the internet are going to destroy trading opportunities. Go back to #8 and read it again.
16. Believing in price forecasts
“If someone knew that the price will go to $40 tomorrow, it would go to $40 today.” It is impossible to predict where price is going to go in the future. Because of the numbers of traders, economists or so-called ‘trading gurus’ and the amount of forecasts, you will always find a handful of people that guessed right. Don’t blindly follow someone who was plain lucky.
17. You use the words casino, boring, killing it to describe your trading day
Markets go up and they go down, sometimes they move fast and sometimes a little bit slower, but it is the nature of how financial markets behave. However, if you are trading because of a thrill and excitement, you won’t last long in this business. Adopt a professional mindset and use appropriate language to avoid emotional trading.
18. You use absolute words like never and always to talk about what is going to happen
Using absolute terms in trading is a very dangerous thing to do, always! If you have seen that a certain setup has worked 100% out of the last 20 times, it can very easily fail when it occurs the next time. And just because you have never seen prices going sharply against you, it is still not an excuse to not use a stop loss order or take a bigger position.
19. Using the words ‘hope”, “wish” or ‘feel’ when talking about a trade
If you hear yourself saying or thinking that you hope or wish that price is behaving in a certain way, exit your trade immediately and do not trade any further. Traders have to rely on hard facts and trade based on actual statistics of proven methods. Trading based on emotions is a major reason why retail traders fail consistently.
Risk & Money Management
20. You watch your floating P&L
While being in a trade, do not watch your account go up and down with every tick. It will result in emotional trading decisions.
21. Thinking about what you can do with the current profit or what you could have done with the loss you could take
Only risk what you are can lose comfortably. Trading too big results in trading decisions that are based on fear and greed, the two biggest enemies of traders. On the other hand, trading too small makes you sloppy and more likely to abandon trading rules and risk management.
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22. Not paying attention to correlations and how they increase your risk
Financial markets are highly correlated. Traders often believe that by taking several trades in different instruments they are diversifying and lowering their risk. What these traders don’t realize is that, especially if your trading instruments are somehow related, they often move in sync and instead of decreasing your risk, you are actually increasing it.
23. Using a fixed stop loss with the same pip amount on different instruments
Traders who use a fixed stop loss with the same pip amount on different instruments and/or different timeframes haven’t understood the rules of the game. There are no shortcuts to trading success and developing a sophisticated and tested stop loss strategy does just as important as know when to enter a trade.
24. Underestimating the significance of drawdowns and their statistical likelihood
Most traders believe that if a trading strategy has 5, 6 or 7 losers in a row, it cannot be a good trading strategy. What if we told you that a trading strategy is still valid after 10 losing trades in a row?
25. Adding to losing positions
This is a big no-go! Learn to take losses because they are normal. Trying to delay the realization of losses is the death sentence for your trading account.
26. Risking an arbitrary number of 2% on each single trade
Setups vary in quality and your position size should account for that. Learn to distinguish between different qualities of setups and entries and use a professional position sizing approach.
27. Ignoring the importance of spread
Research discovered that only about 1% of all day traders are able to predictably profit net of fees. Spread is the cost of doing business as a trader and, therefore, finding ways to minimize your costs should be high on your priority list.
28. Holding losers while selling winners
Research discovered the so-called disposition effect which states that on average, traders sell winning trades 50% faster than they hold losing traders.
29. Trading an account that is not the right size for you
Whether your trading account is too big or too small, both scenarios are less than optimal and have negative effects on trading performance because they are the cause of emotional trading decisions.
30. Denying the importance of math and statistics in trading
Math and statistics are boring and hard, but it does not matter whether you like it or not, as a trader you have to understand the basic math concepts. In the end, trading is nothing but juggling with probabilities, calculating odds and trying to move them in your favor.
31. Not having a trade checklist
Especially for beginning traders, having a checklist that you go through before you enter a trade can significantly increase your performance. A checklist can keep you out of trades that do not match your criteria and increase your discipline easily.
32. Widening your stop loss order when you see price going against you
This is another no-go. Your stop loss is the place where you accept that your trade idea is wrong. Widening a stop loss orders signals that your emotional responses have taken over and that you cannot make sound trading decisions anymore.
33. Using mental stops because you think it gives you more flexibility
A mental stop loss has no advantages whatsoever. None!
34. Pulling your stop loss order to breakeven
Unless it is part of your trading strategy and you can statistically verify that moving a stop loss to breakeven is the optimal approach, don’t do it. Moving a stop loss to break even is a sign that you are afraid of taking a loss and giving back profits.
35. Moving your stops too close
Price moves in waves and you have to give your trades room to ‘breathe’. Moving a stop loss too close to current price will often get you out of trades that would have gone to your take profit order. Learn to distinguish between minor retracements and reversals.
36. Using the big round numbers or famous moving averages for your stop loss placement
Research showed that price behaves significantly different at round numbers and that the reversal frequency is higher in such places as well. The professional players are aware of the fact that retail traders are lazy and just pick what is obvious and easy and it is even more easy to use this knowledge to their own advantage.
37. Expecting to become rich any time soon
The trading industry created the illusion that with enough leverage, the right trading strategy and some luck you can make a lot of money easily. However, even after years of losing money month after month, ‘traders’ still believe that the only reason they have not become a millionaire is because they haven’t found the right strategy yet. Wake up!
38. Not treating trading like a business
Trading is not necessarily hard or difficult, but the approach of the average trader makes it impossible to earn profits from trading. Testing different ideas, calculating and analyzing data, tweaking, continuous self-improvement, preparation, journaling and discipline are all the things the regular trader does not want to hear about and that is exactly why more than 99% of all traders will never make money.
39. Buying a $10 EA
At one point, traders will give up trading themselves and start looking for trading robots or EAs to make them rich. They then buy a $10 trading robot from a random website or from an unknown guy in some trading forum without even understanding what the robot does and start trading their own money. If you still don’t know why this is a bad idea, you have to find out for yourself.
40. Believing that price cannot move higher/lower
Even when price has been in a prolonged rally for several months, you will always find traders who week after week tell you that the turn is imminent and they are looking for short entries. Traders would do well to focus on what is obvious and join the trend as long as it is possible.
41. Trading your own money and savings after 3 months of demo trading
Even people who have been to college or university and who spend years to prepare for a job and then worked their way up are among those traders that open a demo account, take some random trades and then after 3 months of mixed results start trading their own savings. The possibilities that trading offers are limitless and can blind people, but the pitfalls are just as big and the next margin-call is just one click away.
42. Cursing Indicators while praising candlesticks
Whether you are trading price action or are a follower of indicator-based trading strategies, it does not make a difference to your chance of success as a trader. Although people will tell you otherwise, the strategy you choose has no impact on your trading success. It comes down to how you apply the strategy, tweak the parameters and manage yourself as a trader.
43. Analyzing your performance on a daily basis
Do not try to be profitable every single day, week or month. Trading is a long term activity and you do not have any influence on the outcome of your trades. Your only responsibility as a trader is to find a method that has a positive expectancy, religiously apply it and constantly monitor every little aspect of your performance. Do not try to force winning trades, the markets will show you who the boss is.
44. Following advice from random people
Never ever take trades based on opinions, tweets or promises made by other people. “Give a man a fish, and you feed him for a day; show him how to catch fish, and you feed him for a lifetime.