4 Self-Defeating Trading Habits You Need to Break

When you trade the markets, do you feel like you’re your own worst enemy? If so, you’re not alone. This is how a lot of traders feel because, to be honest, they are usually their own worst enemy. Trading may be the ultimate test of self-discipline and self-control. If you can’t control yourself in the face of constant temptation, trading will show you just how bad you are at it, or if you can, it will pay off in a big way. Most people, on the other hand, can’t consistently keep themselves in check when trading on the markets.

The following four trading habits are common self-defeating mistakes that traders make and that you probably know about. After reading this, you should have a better idea of how to deal with them and get rid of them so you can trade successfully.

The need to “control” the market

To be in charge of your trading, you have to give it up…

People have an innate desire to be in charge of their lives and surroundings. At the end of the day, losing control is what makes us feel things like fear and anger. So, when we trade, we often hurt ourselves a lot because of this need to be “in control.” In the end, this need to be “in control” hurts our trading efforts.

When we trade on the market, our need to be in charge leads to the following problems:

  • Over-trading
  • Cutting trades too soon, before they have a chance to work out
  • We take too many risks because we think we know “for sure” what will come next.
  • Trying to avoid losing money by trading without stops, moving stops, etc.

There are more problems, but the four above are the most important ones that come from our need to be “in control.”

This is where the trouble starts…

The market is probably the best example of a “free market,” because anything can happen at any time. Are there semi-predictable patterns in how prices move and how the market moves? Yes. But nothing in the market is ever 100% predictable, which goes against our need to be “in control” of everything.

One of the most ironic things about trading is that the only thing a trader has full control over in the market is themselves. Still, the way most traders act shows that they really think they can control the market or that it will do what they want. This is the only reason why so many people do self-defeating things like trade without stop losses, trade often, cut trades before they really have a chance to play out, not take logical profits when they come up, and a whole host of other trading mistakes.

When it comes to putting their hard-earned money on the line in the market, most people don’t have much self-control. This is why about 90% of traders don’t make money in the long run. Keeping yourself in check on the market often means doing nothing at all. When it comes to trading, this is easier to say than to do. Most people find it hard to do nothing when they are constantly tempted to trade too much, risk too much, change trading parameters, etc.

In the end, the market cannot be controlled. Because of this, most of the things you try to do in the market that you think will make your money end up hurting you. You have to trade knowing and believing that you never really know what will happen next on the market. If you tell yourself this every day and make it part of your trading plan that you read every day, you will find that your thinking will start to change. Every time you think about doing something in the market, you will stop and ask yourself, “Am I doing this because I think I know what the market will do next, or is it a logical action based on the market’s price action?”

Most of the time, the best way to trade in line with the market is to do nothing. This is how you keep yourself in check and let the market “work.”

“Death by a thousand cuts,” they say

It often seems like a good idea to take a smaller loss on a trade than you had planned. After all, you’re only supposed to lose a little, right? Yes, to some extent.

The saying “Death by a thousand cuts” is a good example of how many traders lose all of their money.

How many times have you manually closed a trade before it hit your stop loss, only to see it move back in your favor without you? If this has ever happened to you, you know how annoying it can be. It’s a bad habit to get into because it means you’re trading as if you know “for sure” what will happen next in the market. As we’ve already talked about, you don’t know what will happen, and you should always trade with that in mind.

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So, you MUST let the market show you that your trade idea is wrong. Don’t take a small loss just because you don’t want to take your planned 1R loss.

This doesn’t make sense. If you have a good trading strategy like my price action methods (a trading edge), you need to give it a chance to work for you. If you don’t, you won’t make as much money as you could. Basically, if you manually close a trade before it hits your stop loss, you cut off a possible winner and make sure you’ll lose. Not a good plan.

If you get out of a trade before your 1R loss is reached, unless there’s a very clear reason to do so, you’re just trying to control the market instead of yourself. Now, there may be times when you’ve decided ahead of time that you’ll move a stop loss to breakeven at a certain point, say after you’ve made 1.5R on a trade. If that’s part of your plan and you get stopped out at breakeven, you have to deal with it. Traders get into trouble when they change their stops on a whim during a live trade, for no reason other than fear or greed.

Think of trading losses as the price you pay to do business. You pay a certain amount (1R) to find out if your idea for a trade will work. If you don’t use that 1R money, you’re not giving your idea enough time and space to work out, and you’re not making good use of the costs you’re paying.

Remember that you shouldn’t disprove your own trading idea before the market does. Let the market show you how wrong your trade idea was. If you were following your trading plan or strategy and not making a “stupid trade,” you probably had a logical and likely high-probability entry idea, and it makes no sense to cut it off before it has a chance to play out.

Being sure you know what the market will do next

Traders often put themselves out of business on the market by acting like they know “for sure” what the market will do next. This belief is very dangerous, and if you don’t get rid of it the right way, it will cost you money, time, and so much frustration and anger that you’ll want to pull your hair out.

When a trader trades on the market, he or she has to decide whether to do something or nothing. At any given time in the market, you really only have a few choices: make a trade, don’t make a trade, “set and forget” your trade, or “mess” with your trade’s parameters (target, stop loss, adding positions, etc.).

When you think about these options on the market, you have to keep in mind that you never know “for sure” what the price will do next. So make sure you act based on what makes sense and what you see the price doing on the charts, not on what you want to happen or what you think will happen next “for sure.”

Entering ‘stupid trades’

Ah, stupid trades. They are maybe the most common mistake in trading, and all traders make them at some point or another. There is a direct link between how long it takes you to become a good trader and how many stupid trades you make. This means that the more stupid trades you make, the longer it will take you to trade successfully, and if you keep making stupid trades at an increasing rate, you will eventually blow out your trading account.

Stupid trades often lead to a lot of extra losses, which are usually small, because traders usually know if they made a stupid trade or a smart, well-planned trade. Most traders close out these “stupid trades” for small losses, but as I said above, “death by a thousand cuts” is one of the most common reasons why trading accounts go bankrupt.

With a live trading account, it can be hard to sit still with a “loaded gun” and not pull the trigger (enter a trade). But the more you do this, the better it will be for your trading account. Learning to be patient between obvious price action trade setups is probably the most important skill you need to learn if you want to be a successful trader, and for most people, it’s also the hardest.

Maybe you don’t yet know the difference between a “stupid trade” and a good high-probability trade signal because you haven’t mastered an effective trading method and don’t know what to look for in the market. Or maybe you already have a good trading plan, but you’re not disciplined enough to follow it. Until you learn to control your own mind and come up with a good trading plan, you will continue to fall into trading habits that hurt you.

“If you don't find a way to make money while you sleep, you will work until you die.”

- Warren Buffett


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