Following on from our article on Top Ten Trading Quotes used by traders to inspire their daily battle with the markets (see below), we've spoken to yet more traders to put together a list of their most common mistakes - to help the rest of us to avoid them.
Read below for ten of the biggest trading no-no's that many traders have in their trading journals scrawled out in red capital letters...
1. Trading When Tired
For many, this is the blunder of all blunders, specifically for the discretionary trader. There is nothing worse than sitting down at the desk after a late night or early morning, switching on the screens and trying to execute your trade plan.
For the average human, six hours or less of sleep has a significant impact on ones clarity of thought the following day. Make sure to log those eight hours before each trading day.
2. Trading When Hungry or Thirsty
Sounds straight forward right? But some traders we spoke to noted the number of times they'd been waiting for a set up concentrating on the charts and forgot to remain hydrated, or let their blood sugar drop. Resulting in, just at the point of pulling the trigger on a trade, becoming strangely distracted or being guilty of second-guessing.
It is essential to maintain hydration and blood sugar when trading as these are major contributors to mental alertness.
3. Screen Staring, Over Stimulation
Another easy error that traders mentioned was allowing themselves to become over stimulated by excessive exposure to the screens. When you sit for extended periods of time blankly staring at the screens, you can become hypnotised by the movement and actually disengage from the data on the charts.
You have become over stimulated to the point of switching off. It is imperative to remember to take regular breaks from the screens throughout the day to maintain your mental edge.
4. Trading Your P&L
Once you have got your bio mechanics and concentration right it is of paramount importance that you avoid trading your Profit and Loss.
A number of traders we spoke to recounted the times they had fallen foul of this chestnut. Their advice? Switch the profit and loss function off on your broker platform and focus on the trade plan, not the cash outcome of any single trade.
5. Moving Stops or Targets
This is the error that will hamstring a trader's P&L progress like no other. Once you have developed and back-tested your trading strategy, avoid second guessing your well developed plan mid-trade.
Think of all the time and effort you put in creating a robust and profitable strategy - it makes little to no sense to start tinkering with it on a trade-by-trade basis.
6. Failing to Plan
"Failing to plan, is planning to fail". Like a lot of cliches, there is an essential truth at its heart. This is no different. Any time you sit down at your trading desk and you are not adhering to a predefined trading plan you are effectively gambling - you might as well head to Vegas as you'll certainly have a better time.
It is essential that each time you switch on your screens that you are intending to execute a trade plan, and not just scanning charts for potential unplanned trades.
7. Screen Scanning
This trader fail is essentially linked to boredom that drives impulsive behaviour that leads to big leaks in your account equity.
So you sit down to the screens, and low and behold an hour or two passes and none of your anticipated trade set ups develop. You start flipping through the charts looking at new instruments or different timeframes. The traders we spoke to could not stress how key it was to avoid this urge - your P&L will thank you for it.
8. Taking Trade Tips
Someone you trust (or worse: someone you don't know) has given you a tip. Tempted to follow them? Well, the minimal upside you may experience from doing this will be far outweighed by the downsides from engaging in this rookie practice.
Taking a hot tip is setting you up for disappointment, taking a position whereby you don’t have knowledge or thoroughly understand the trade thesis or parameters only ends in tears eventually. And it could even risk fracturing relationships.
9. Being Over Eager For Action
Traders we spoke to emphasised that they had techniques to maintain composure, key to developing long-term trading success. They said being over eager to experience action in trading is a trap door to liquidating your account.
The trader's core task is monitoring market ands waiting patiently for pre-defined set ups to arise, not to sit on the edge of their seat excited and eager to trade.
10. Letting Losers Run
This final nugget from our trader survey applies to trades and errors in general. We all know that the mantra of cutting your losers early is an essential element to developing a successful trading career.
One must also apply this principle to trading mistakes, when you make one, correct it at the very first opportunity. Do not let it become a compound error, where one mistake roles into another and another all because you didn’t have the gumption to address the first mistake.