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3 Trading Mistakes You Cannot Afford to Make

5 Apr

These 3 trading mistakes will most certainly lead to disaster. More can be read about these mistakes here.

Impulse Trades –

The impulse trade is usually a much liked trade. It makes you feel like you actually know what you are doing, like you have some sort of control over the markets. Sadly, they always end in disaster. Go back and look for yourself. Evaluate your trades by how well you followed your setups.

Here is a post on how to evaluate your trades and improve your performance.

If you find yourself clicking sporadically on the trading ladder you need to stop immediately and reevaluate your trading plan.

Revenge Trading –

Just because you had a loss doesn’t mean your next trade needs to be a home run. Revenge trading is another mistake that most new traders make as they become attached to their previous loss and want to make it back. Try for consistent singles and doubles with a few strikeouts in the mix. Keep your losses small, and forget about them.

Trading Too Big for Your Account –

Trade to trade well, not to make money. This is such a crucial point when starting out. Don’t kid yourself in thinking that you will be making a 6 figure income a year after you begin trading with your $2000 account.

While possible to take an inordinate amount of risk and see a large return. It is not sustainable in the long-run. If you’re trading an account size of $10,000 then the max number of contracts you should be trading on the ES or 6E is 2, enough said.

Trade your setups as they come and try to incorporate the 12 characteristics of highly successful traders.

How to Evaluate Your Trades

24 Mar

One great way to track your trade performance and determine which setups are working and which are not is to evaluate your trades at the end of each day and week. This is the breakdown I use and is derived from John Carter’s book Mastering the Trade.

5 – Target reached
4 – Out for win (due to technical factor that signaled me to exit)
3 – Break even
2 – 1 target hit
0 – Full stop out
I – Indicates impulse trade

Scoring

  • Add up daily score and divide by # of trades for average
  • Separate trades by setup and take overall average
  • Score trade setups with below criteria.

Grading

Grade trade on how well you follow setup; take an average at the end of each day, week and month and look for trends. Ask yourself these questions…

Did I… Jump in too soon? Jump in too late? Chase? Get out too soon?

All of the above are impulse trades and should be avoided at all costs. Illuminate your impulse trades and the profits will follow.

When NOT to Trade

22 Mar

Waiting patiently on the sidelines is one thing you hear some of the world’s greatest trader’s talk about in the book Stock Market Wizards. These are the times I’ve found best NOT to trade.

  • When breadth is at parody, 1:1
  • When the a/d line is at parody, inside |400|
  • When the tick is at parody, inside |400|

Days to Avoid Gap Plays

11 Mar

Avoid gap plays on the following days.

1.       Options expiry Fridays. It’s OK to play gap up situation.

2.       Rollover Thursday and the day after.

3.       First trading day of the new month.

4.       Day after Fed day.

5.       If after a narrow range day, the next day’s gap is larger than the previous day’s range.

6.       Gaps where the opening prices are outside the previous day’s session high or low.

Revenge Trading, Why Trying to Get Even is a Mistake

8 Apr

Costa Rica

For newer traders and veterans alike, revenge trading can become a big problem and lead to over trading. When a trade goes against you we sometimes feel the need to get back to even, or make it back on the next trade in the market that took it from us in the first place. This in turn leads to more losses.

The most important thing about trading is knowing when to stop. Having a rule, or line in the sand as to what dollar amount or loss you will stop trading BEFORE you place your first trade is vital to keeping your account alive. Remember, the market will always be there, but you won’t if you blow up your account.

Here I talk about the 3 Trading Mistakes You Cannot Afford to Make and how to avoid them.

So find a hobby or fun activity that takes your mind off trading, preferably outdoors, for during those rough times or when the markets are closed. Whether it’s hiking, biking, running, playing sports, working out or golf, studies have shown that being outside in green spaces like gardens and parks can act as a recharger to the mind, and as traders, we always need to be on top of our game.