The Pitfalls (11:28)
All right. So now you are aware that emotions play a pivotal role in your trading. Let’s talk about some pitfalls that a lot of traders or new traders end up falling into, and then maybe some things that you could do about it. So let’s get into the pitfalls, right? Revenge trading simply put you lose money on a particular asset, and then you trade that asset over and over and over again until you break even, or until you win.
It’s no different than going to a casino. You go to Vegas, you go to five different casinos. You lose at one, you constantly go back to the one you lost at because, in your head, that casino owes you. It’s called revenge trading. Stay away from it at all costs over-trading. We say you should only limit yourself to X amount of trades a week or limit yourself to percent gained per week.
And for some traders, percent lost. Per week, just don’t take any more than 20% in a single week. That’s outta control. And for winners, say, Hey, look, if I can make 5% a week, 10% a week on my total capital, I’m looking really good for the entire year over-trading. As you start getting greedy, you say, oh, I could take that trade.
And that trade instead of 5% for the week, I’m gonna walk away with 25% of the week. What happens is you walk away with 20%. No trading at all. This is a fear mechanism. This means you’re so gripped by fear that you’re just every trade that you look at. You’re like, yeah, I don’t know. You talk yourself out of it.
It’s probably not gonna break out. It’s probably not gonna do this. It’s probably not gonna do that, but your strategy says. And you don’t so grip by fear or no trading at all. Quit trading. This is the worst, obviously, but you go all in on a trade, really. You hope that you lose, you hope that it goes to zero you’re so fed up at that point.
You are just so fed up with trading. You’re so sick of everything. You’ve worked yourself into it. Bottomless pit, you can’t crawl out, and you’re just like, just take my money and just be dumb with it. I don’t ever wanna look at this account again; make it say zero. So I don’t have to withdraw $3 and pay the transaction fee.
I’m done. I just got to get outta here. All right. Quit trading; bad news, zero. Use of risk management. Man, this works both ways, but this happens in revenge trading happens in overtrading. This happens when you’re fearful. It also happens when you’re greedy. Generally speaking. It’s when you’re greedy, that you feel so confident about all your trades.
You’re never wrong. You’ve won 10 in a row. You’re the man. You’re the best trader in the world. You can never lose. So you throw risk management out the window instead of putting “X” amount position size on the trade so that your stop loss makes you only lose 1%, and you say, yeah, I’m not even gonna use a stop loss, and I’m gonna go ten times the amount of my normal position size because I want all these juicy gains.
It very rarely leads to anything. Good. So that’s a pitfall you want to avoid all in trades. Again this kind of goes hand in hand with quit trading, but all in trades. All in trades are not bad. There is a caveat here when you have a very small account, and you are trying to grow that account so that you have a reasonable amount of capital to work with.
You can do some all-in trades, but they need to be specific strategies with very specific stop losses. You cannot do an all-in trade with no stop loss. You cannot allow it. Your capital to go to zero. You cannot do that, but you can do an all-in trade with a tight stop loss where you guarantee a profitable gain.
If you start pushing that stop loss up, provided it’s going in the right direction, or you get outta that trade. And, after losing 1% or maybe 2% and that’s it, and you’re out of the trade, stop loss set, ready to rock and. Coin flipping coin. Flipping is essentially looking at an asset saying it’s either gonna go up or down.
Essentially it’s coin flipping. I’m not joking. Some traders, well, they’re not even traders. These are gamblers. And they’ll just say, eh, it could go up, eh, it could go down and that’s it. And that’s all the information they need, and they just get into the trade, which is not a good thing to do.
And then counter-trading yourself. This is when. When you take so many losses in a row, you start to say, okay, the next rate I’m gonna take, I’m gonna do the opposite. Instead of going long, I’m gonna go short. And it generally ends up being a disaster. So these are some pitfalls you want to stay away from. They are pretty common.
And if you notice these things happening, that’s when you want to stand up and start walking. All right. These are common pitfalls that traders will find themselves in. If they let their emotions get the best of them. And they end up in the spiraling tunnel of doom, also known as having a bad mindset for trading.
When you recognize that these things are happening, that is the moment you need to do something about it. Not waits. You need to stop trading; just stop trading. When you find yourself in these situations, stop. Stand up, take a step back and reevaluate the entire situation. Reevaluate what you’re looking at, why you’re looking at it, reevaluate your strategies, your plans, and everything that you have going on, reevaluate it, and then ask yourself if you’re in the right mindset.
Am I pissed off? You probably shouldn’t be trading. You’re like, no, I’m good. I just, I don’t know what happened. Maybe I was getting a little ton of vision. I was zoomed in on this 15-minute chart. I forgot, to look at the daily and get my grip on what’s going on here, but now I’m better.
I’m good. And I’m ready. I’m ready to go for the next trade. That’s fine but take that moment. Take that moment to sever the tie from starting to go down the rabbit hole to being fully consumed by the void. All right, you need to calm down. Collect yourself. Losing is all part of trading. Booking losses will hurt.
Trust me, it’s terrible. But it doesn’t need to end your trading career. So what happens is some traders they’ll just stay in a trade and watch that thing just go down to zero and never do anything about it. Where other traders are like, I’m gonna take this 20% loss it’s gonna hurt. It’s absolutely gonna suck.
But I’m gonna do it. And I’m gonna salvage some capital so I can take the next trade when I’m feeling up. So look for a lesson to learn from whatever happened. All right. Or, if you’re on a losing streak, look to see if there’s a pattern that arises from your losers, and that’s where your trading journal comes in and helps you to find patterns or things that are in common with all these losing traits.
Just make sure that you’re in a better mindset before you take the next. How does one get this mythical mindset? How does one trade like a robot? There are a few things. Some traders do that, helping them get into a good trading mindset before they ever even start the day before they even start trading.
Now, before else, you wanna practice good risk management. This goes without saying it’s mandatory. All right. Good risk management on all trades and set your trades up with an entry stop loss and a tape profit so that the platform. Can execute the commands for you. That’s the robot part of it. That’s the robot part of it.
If you follow your trading plan, you follow your strategy. Some strategies allow you, especially if it’s a static, horizontal level it allows you to put in your take profit and your stop loss. Some exchanges even allow you to do dynamic, stop losses, something like a trailing stop, or something that’ll activate after something else happens.
But if it’s up to the exchange to do it, there’s your robot. It’s just going to execute. Then at that point, you just need to walk away. So in the next slide, you’ll see a list of some things that professional traders do in order to maximize their mindset for trading. And this isn’t just professional traders.
These are professionals around the world in everything that they do.
Get a good night of sleep, and maintain a fairly regular sleep schedule. Exercise, meditation, eat a healthy breakfast, keep a clean trading environment, and remove all distractions from where you trade. Listen to music that you like, open some windows and let in some light.
Repeat daily affirmations. Celebrate the wins, but stay humble, get up and move around every hour and drink plenty of water. So essentially, just try to be in a happy place. Just try to be in the best place that you could be in when you start trading. All right. So that’s it. We’ll wrap it up for the pitfalls.
It’s time for the pop quiz.
Getting happy, getting mad, getting disappointed. It’s all part of trading. The difference between winners and losers is recognizing that you’re going into a dark place, preventing yourself from going there, and understanding that trading is winning and losing, allowing those things to not affect your trader’s mindset. True or false.
Okay. That should be very easy. All right, here we go. Trade like a robot and the pitfalls we talked about, both of them let’s hit the conclusion trading can be the most rewarding and the most challenging thing you’ve ever attempted in your life. When traders say trading is easy, that means that they’ve mastered their emotions.
When a trader says trading is very difficult. It usually means that they have a lot of work or some work to do on the psychological side of things. At the end of the day, trading should be fun. It should be exciting, and it should be profitable. Do your best not to allow the dark side of trading to take over that will wrap it up for a trader’s mindset.
I hope that you enjoyed this one. We’ll see you on the next one.