7 practical exercises to start your trading / investing day
by Werner Hochleitner
This following article is an excerpt of the PDF which is bisected into a theoretical part, pointing out a few of the most common trading mistakes caused by our emotions and a practical part showing how to overcome those psychological tripwires.
Without further ado, here is a list where you probably find yourself somewhere in between those lines.
Lets start with a few of the most common mistakes with a psychological background - ( Please note that this is just an excerpt of mistakes that would be avoidable with the right mindset ) .
Too much risk / not enough risk
So you got a well scripted Trading plan and made a commitment to the risk factor you want to take for each trade. At some occassions however, "at a good opportunity" you take the 3-folded risk and come up with ideas taken from games of chance, like Martingale. By doing this you increase the risk by adding the lost capital to the money you risk for each trade. Imagine only 3 lost trades in a row and you see easely how fast this could become very expensive. It´s simply not compatible with common sense and even less with serious money management.
Suffering losses because of not enough risk are usually the effect of too tight put stopps. If you strategy tells you to put the stopp loss 50 points away from the entry level, than why do you just use 30 points? In case the distance to the stop is too far away for your accounts size, than just use a smaller size of the position. You dont need to trade a full lot in forex or the big index futures.
No targets and no clue about how to manage your trades
No matter if Pivot lines, Fibunacci, technical resistance or other ways to evaluate a situation. Eventually we all need a target when we enter a trade, how else should we manage the trade correctly? We should know when to exit a trade or to realize profits and limit our losses. To be greedy by trying to push every trade to it´s limit won´t lead to success. It´s true that the saying "Limit your losses, let profitable trades keep on going" is right, but you should also know when it´s enough and you should exit.
Another situation would be to wait when a trade is in a minus. What if the certain product won´t come to the desired level for months? Especially with leverage products, this could be quite expensive over time, since the over-night-holding costs would extend dramatically.
No Strategy, trading by "gut feel"
Intuition is a great thing, but it´s the wrong approach to trading. It´s all about the money and therefore we tend to make unreasonable decisions, which again could lead to talk yourself into a trade, eventho you should have stayed away.
A positive attitude towards trading is beneficial and trading without a strategy is sheer madness. How should the management and overall plan be repeatable when you just listened to some random gut feeling? Being stubborn and ignoring the laws of the market has already flattened many accounts
Getting rich quick - unrealistic expactations
Trader X just uploaded a video where he made 274.000.- USD within a few minutes. I want that too, right here and now! Well, Trader X maybe has app. 100 times your account size. Maybe he needed 18 takes, after 17 losses in a row to produce that content? Maybe it´s even a demo account and the video is done for the sake to attract affiliates for a Broker and receive commission fees. All of these things are possible but sometimes get generously overlooked by beginners, completly caught in the web of unrealistic expectations.
Greed in combination with inpatience has always been a bad advisor