All traders make mistakes. It’s part of the game.
We can all survive the occasional lapse in judgement.
But what we can’t survive is bad habits.
A bad habit can act like a big losing trade that just grows and grows, destroying your potential, and eventually, your capital.
So I’m going to lay out 4 deadly habits that you need to break right now.
1. Entering a Trade Too Early
You’re done with your pre-market prep, and you’re excited and ready to click on that buy button.
The opening bell rings. Prices are flashing and charts are wiggling.
One stock catches your eye, and it looks like it’s about to set up. So you jump in.
“I’m sure this will trigger, so I’ll be a step ahead of the game by getting in early.”
You’re sitting there for 10 minutes, waiting for that trigger to confirm your instinct… and it just doesn’t.
Then, you check the other time frames, and just as you get stopped out for an $800 loss, you realize the setup was not quite ready.
Organization will help you avoid errors like this. Your environment reflects your mental space, so get your trading screens in order ASAP!
For multiple monitor setups, keep high-priority charts and symbols on your primary monitor. Put secondary items, like trades that are still setting up, further away from you.
For a single monitor setup or laptop, dedicate more screen space to top priorities, and keep your ticker lists sorted according to the quality of the setups.
This will keep you focused on the highest-probability setups.
2. Hesitating to Enter a Trade
Trading requires a healthy balance between fear and greed. Greed may drive you to act too quickly. And fear can keep you from taking action altogether.
Hesitation often results in missing profitable trades.
Passing on a bad or mediocre setup is smart.
Occasionally, you’ll get frustrated because you’ll watch bad setups become big winners without you. Other times, possible trades will trigger and make money before you can finish your assessment.
However, fear of losing should not be the primary reason you pass on a trade.
If your primary motivation is not to lose, then step away. Take the day off.
Odds are you’ll regret passing on good trades and mismanage the ones you do take.
A premature trail to breakeven is one of the most common symptoms of trading to avoid losses.
Additionally, journal your thoughts. Find a balance between fearful thoughts and confident ones.
Sometimes, fear does not overcome you until the middle of the trading day, whether you’re afraid of giving back profits or about digging a bigger hole.
3. Exiting a Position Too Soon
Even with well-defined risk limits and targets, sometimes you’ll exit trades too soon.
You can find yourself getting out to prevent a full loss, only to see the trade reverse to your target.
If this happens consistently, reduce your position sizing.
You are overestimating your tolerance for losses.
Other times, you’ll exit a winning position ahead of your target price.
To avoid this, write down your trades on paper.
Writing them out by hand makes the setup, entry, and target more tangible, which will help you avoid making decisions based on unrealized profits and losses.
4. Exiting a Position Too Late
Want to ruin your account?
Then don’t take your predetermined stops on a losing position.
Sometimes, there’s good reason to widen a stop, but repeatedly ignoring risk limits and praying for comebacks will destroy your career.
The first loss is the best loss, so just accept that you’ll be wrong sometimes.
On the other hand, if you hesitate to lock in profits when stocks hit your target, then solidify your management plan.
Are you trailing using a 5-minute bar or pivots?
Would you rather leave a Limit Order open that will automatically trigger at your target?
Targets and management should be determined before entering the trade.
Additionally, consider increasing your risk and share size.
If your profits on a winning trade don’t get you excited enough to take the gain, then perhaps you are not risking enough.
Correcting bad habits is a very personal issue.
And I know from experience that it’s not easy.
However, if you can identify your worst tendencies and fix them, you’ll see a marked improvement in your P&L.
Remember, there are 2 ways to make more money.
You can do more things right.
Or, you can do less things wrong.
So do less things wrong!