Seven Sins of Trading

7numbers1. Trading an inappropriate position size.
Simply put…if you risk too much, you’ll lose too much. In my eyes, this is the single most important rule of trading. Risking only 1-2% of an acct value is crucial to staying in the game.

2. Not knowing when to take the loss.
If you cannot answer the questions “Where am I taking the loss,” and “Where is my profit target” then stay out of the market. If you leave these decisions for later, then you will make them emotionally, which will be the worst decisions a trader can make.
3. Trading on someone else’s research or recommendation.
We have all heard stock tips thrown our way. Sometimes we might even hear people throw out potential trades that they are watching and become tempted to jump in. Sometimes I throw out stocks that I am trading and I am watching. The problem is that you might not know what this person is watching for, what strategy this stock fits, or what types of efforts are thrown into their research. If you take these stocks into consideration, make sure they are trades you would have likely come across on your own by conducting your own research. (more…)



The hardest lesson I have had to learn is to “Act in my own best interest”. And to overcome and correct things like:
1) trading without a stop
2) refusing to admit I am wrong and to get out of a losing position
3) trading for the sake of trading
4) chasing entries (going long on the top tick, shorting on the bottom tick)
5) revenge trading (after a series of losses)
6) trading while sick or tired
7) trading without a plan (entry, exit, money management rules)
8) …
Anytime that I am in a position and either don’t know why I am, or what my profit target is, or what my stop loss is, etc. – I am not acting in my own best interest and have always struggled to close out the position immediately.
The times I have without any further hesitation, it turned out to be a wise choice and saved my butt from significant losses (more so than I already incurred).
The bottom line is that you will do much better in this profession if you can answer YES to the question – “Am I acting in my own best interest”?

Risk and Reward

Before placing any trade, a strategic trader must always know and identify the maximum risk exposure for the trade. Once the risk is identified, it should be compared to the possible profit target. If the profit target does not justify the risk exposure, the trade should not be taken. It does not make any sense to risk a dollar to earn a penny. One of the common mistakes that cause traders to consistently lose money is that they fail to let their winners run. They quickly close out their trades as soon as they become profitable. While no one can argue against taking a profit, consistently taking profits that are not consistent with the desired risk/reward ratio ultimately leads to a net loss. Once a stop is hit, it immediately eradicates the small profits of three or four trades that were prematurely closed. It is hard to leave your money on the table, but there are ways to move up your stops and use a trailing stop to allow you to stay in your trades to realize your designated target.

Once a trade is placed, prices will always fluctuate; that’s the nature of the auction process. Rarely will a trade directly navigate to the profit target without a retrace. This is where paper trading comes into play. It allows a trader to watch, learn, and record how long it takes to reach a profit target and whether the risk/reward strategy that they are using is in fact feasible and workable.

7 Deadly Sins

  1. Trying to pick top or bottom
  2. My gut tells me that we’re going to break out (Professionals love fading breakouts)
  3. No confirmation from my Volume indicators (wait for everything to line up)
  4. Hesitating on entry (typically when the trade is “hard” to take)
  5. Canceling my stop (OMG, the biggest Sin of them all !)
  6. Moving my profit target (got to let the winners run)
  7. Letting a profitable trade turn into a loser (luckily, a rarity)

17 Points for Traders

  1. Patient with winners, and impatient with losers
  2. Making money more important than being right
  3. View TA as a picture of where traders are lining up to buy and sell
  4. Before they enter every trade they will know their profit target and/or stop exit
  5. Approach trade no.5 with the same conviction as the previous 4 losing trades
  6. Use naked charts 
  7. Comfortable making decisions with incomplete information
  8. Do not think of markets as expensive or cheap
  9. Aggressive with trade size when doing well and modest when not
  10. Realize the market will be open tomorrow
  11. Judge their trading success on anything but money (more…)

The Ten Tasks of Top Traders

  1. Daily self analysis:   Successful trading is 40% risk control and 60% self-control.
  2. Daily mental rehearsal:   Practice being disciplined in your mind before you trade daily.
  3. Developing a low risk idea:   Trade with the odds on your side with a defined risk.
  4. Stalking:   Wait for the entry. Utilize patience and don’t pull the trigger to soon.
  5. Action:   Take the entry when the signal is hit. Do not freeze up. Be definitive.
  6. Monitoring:   Keep an eye on what is happening with your position.
  7. Abort:  Be ready to cut your losses, when you are wrong and hit your stop loss.
  8. Take profits:  Use trailing stop or profit target when one is hit. Allow the market to take you out.
  9. Daily briefing:   Think through your trading & what you did right/wrong based on your trading plan.
  10. Periodic review:   Is your trading working? Do adjustments need to be made?

Game Plan

gameplanCreating a game plan is very easy and you can do in a matter of minutes. Here are the key steps to creating a very basic game plan:

1) Write down your reasons for buying or selling a particular market.

2) Write down your entry point for the market you’re about to trade. Why are you getting in? Did you see a technical set up?

3) Write down when you are going to exit this market. Why and when are you going exit? Was your profit target reached, or were you stopped out?

4) Do not make market decisions during trading hours. It may sound easier said than done, but watching the daily ticks can cause your emotions to go haywire. (more…)


The ANTICIPATION Phase:  this is where all the left hand chart reading takes place in preparation for the right hand chart battle. It’s the PROCESS that precedes the ACTION to put on a trade. A technical trader anticipates that a past price pattern will repeat again, so he identifies the pattern, locates a current one and determines a suitable match is present.  Technical analysis is nothing more than finding previous price patterns matched with current market conditions.  Traders anticipate such repetitive behavior based on human nature and seek to take advantage of it.

The ACTION phase involves hitting the BUY key based on the previous ANTICIPATION process.  Since no one can tell the future or what the right hand side of the chart will reveal, the ACTION is based on the confidence that the trader will do what is right once a trade is put on, which is to exit gracefully at a pre-determined loss line or exit humbly at a pre-determined profit target (P2), fully accepting either/or, or an OUTCOME between one or the other, depending on current market conditions.

The REINFORCEMENT phase occurs after the trade is closed.  Whether or not the trade is a win, lose, or draw, the self-talk immediately following trade closure is vitally important for the next trade, and even the next series of trades, as future trades can be negatively or positively affected by building pathways to future success.  These pathways are neurologically based and can make or break a successful trading career.  While it is important to ANTICIPATE right side chart OUTCOMES, what is more important is DEVELOPING right side brain reinforcement.

Top 3 Trading Strategies

3 Strategy1. High probability setups with short profit targets

If you are not winning more than 75% of the time you’ll never make it as a professional trader. Whilst there are other components to success, he does make a very good point. The most common trading strategy employed by successful trader is to identify a high probability set up and couple that with an aggressive profit exit strategy that captures short term gains. For example, you might have a entry criteria that easily captures 15 points on average but you set your profit target at 6 points.

2. Adding to winning positions

Many people think all trades should lead to profit but you’ll find the most successful medium term traders on win 40-55% of the time. The difference between an amateur and a professional, when trading short to medium term trading systems, is their ability to maximum their cash on a trade when it’s winning. The Turtles, under the watchful eye o f Richard Dennis and Bill Eckardt, had a way to add to their huge winners up to 4 times. Very powerful. In order to maximize this strategy you will need to identify your R multiples which will be saved for another article.

3. Mechanical trailing profit stops

Knowing when to take profits can be the most mentally draining part of any trading system. Its not unusual to start trying to let profits run that the markets starts retracing and wiping out all your open profits. The way to overcome this emotional rollercoaster is to build mechanical trailing stops that maximize your profits on winning trades whilst minimizing giving back to much in open profits. (more…)

What makes a trader consistently profitable?

There are three things:
1) Having an edge, which is some methodology for determining with reasonable accuracy the relative probability of the market price hitting your profit target before it hits your stop loss price.  An edge is provided by a set of trading strategies, and a set of rules for when to use which trading strategies (briefly, when to follow a trend, when to fade a trend, and when to stay out.)
2) The discipline and emotional fortitude to follow the rules of your trading rules flawlessly.
3) Sound risk and money management rules.  
Sound money management and risk control are the keys to being a profitable trader. It is not the prediction or the latest and greatest indicator that makes the profit in trading, it is how you apply sound trading discipline with superior cash management and risk control that makes the difference between success and failure.  (more…)

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