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5 Major Trading Pitfalls

  
  Education
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2dl87puPitfall #1. Betting the farm. Let’s be realistic. Not every trade is going to be a winner. Here is a simple rule for you to remember. Never commit more than 10% to any one position. When I was trading in the pits in Chicago I heard for the first time about the “RIOTRADE”. Simply put, you take a huge position in the market. If it works out, you are a hero. If you lose, you leave home and head for Brazil. Again, NEVER BET THE FARM ON ANY POSITION.

Pitfall #2. Planting too few seeds. This one goes hand in hand with the first pitfall. The key here is diversification and following several markets. Ken watches 30 markets and looks for profit opportunities in each one as they occur. PLANT MORE SEEDS AND YOU CAN ENJOY MORE WINNERS.

Pitfall #3. Jumping the gun. Patience, patience, patience. This is perhaps one of the toughest things for traders to remember, particularly after they have taken some good money out of the market. JUMPING INTO A MARKET BEFORE ALL INDICATORS ARE POSITIVE CAN CAUSE UNNECESSARY LOSSES.

Pitfall #4. The hope trap. This is one of those pitfalls that goes completely against human nature and it is the biggest account killer. What I am talking about is hanging onto a losing position in the desperate hope that it will turn around. A SIMPLE SOLUTION IS TO ALWAYS PLACE A STOP ON EVERY MARKET POSITION AND DO NOT CANCEL IT! (more…)

Learning From Mistakes

  
  Education
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Layout 1The ability to learn from mistakes is an important part of the skill development process. In addition, those who trade well tend to adopt a “perpetual student” mentality toward the markets which also helps keep their ego in check.

However, learning from mistakes you make is not as simple as it sounds. Equally important and challenging is figuring out which mistakes offer a lesson and which mistakes are just a routine part of trading. For example, sometimes I run into traders who think that in every losing trade there is a lesson to be learned and that’s simply not true unless you see a specific pattern repeated in other unsuccessful trades. As any experienced trader will tell you, a trader can make all of the right moves and their analysis may be 100% correct, but that doesn’t guarantee a successful and profitable trade. Perfection and trading well do not go hand in hand and not all unsuccessful trades offer a lesson to be learned. It is in the ready identification of patterns when making mistakes that you see within the more experienced and high performers.

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