Letting costly habits creep into your trading is all too easy to allow. After all, you don’t have a boss to tell you what to do, what not to do, how and when to do it, and you can risk as much as you like.
Whilst it’s this freedom that attracts people to Forex trading, it is habits like these that can be quite a challenge to overcome, and many people don’t even recognise it’s a problem until it costs them dearly.
With that in mind, we’re going to chat about the three worst trading habits and how to conquer them.
Now, I’d say this is one of the most common issues for almost every trader at some point in their journey. One of the questions that normally precedes this problem is “What account size do I need to make $x per month?”
There’s no particular correct answer to this, because it will vary from trader to trader and is contingent on a tonne of variables down to your cost of living and trading style, but in my experience, those who are solely concerned with making thousands of dollars per month instead of focusing on their process are quite mistaken.
To put it another way, it’s like asking how much revenue your business can make before you even have a product or service to sell.
This mentality leaves traders in a position where they are trying too hard to make money. So instead of scanning the charts for their setups and waiting for the market to come to them they’re forcing trades and rushing things in a vain attempt to double or triple their account every month. This results in one of two things, or even both.
– Risking too much
So what’s the solution? Trading is all about how well you execute your process. That means focusing in trading your plan and improving on your trading plan. The result isn’t the heart-pumping triple percent pay day, instead the result is consistent returns.
It should go without saying that you need a sizable account to make sizable profits. The only way to get there is to focus on your trading process, keep your risk small, choose quality setups over quantity and let compounding do its thing.
Most new traders mistake inactivity for missed opportunity. While a trader is someone who trades, patience is a trader’s most valuable traits.
All most all new traders make the mistake of thinking that they must be doing something at all times, when really, a minimalist approach can be the best course of action. It’s important to note, that no one begins trading with the required level of patience and discipline, it takes years of practice and experience to get it right.
This can be sped up by altering the way you look at the market. For instance, if you’re struggling to look for something to trade each day or searching and searching for a trade that’s not there, start making a conscious effort to scan your charts briefly, and then if you don’t see anything worthwhile just walk away and come back later.
Again, it is quality over quantity that will boost your bottom line. All you need is one good trade, followed by one good trade, followed by one good to make a considerable return.
Now, before you say anything, I know that we have an article specifically outlining how to trade the news. News events create significant volatility, causing the market to fluctuate quickly within a very short period of time.
While these events can result in profit, they can also trigger significant losses too.
A lot of new traders see major news events as an opportunity to double their account, the reality is it all-too-often results in a margin call.
Here’s why it can be a bad idea to trade the news.
There’s no real edge.
While many might disagree, the truth is that you never know what the outcome of a given announcement will be. Sure, you can venture a guess, but guessing has nothing whatsoever to do with trading, and those whose ‘edge’ is built around such thinking should perhaps reconsider whether trading is for them.
Volatility goes in both directions.
The Forex market never moves in a straight line. And, this is especially true during news events like NFP or Fed Rates, etc. Next time there’s a high-impact news event, open up a 5 minute chart and just watch it go. Even though the market will eventually make a decisive movement higher or lower, you’ll notice there’s a lot of indecision before it does so, with a good chance of whipping you out of your trade before you see any profit.
Unpredictable market reactions.
Even if you manage to guess the outcome of a news event and don’t get stopped out too soon, there’s still another road block ahead. How will the market react to the outcome? The answer to this question is as just as hard to anticipate as the news outcome itself. Negative news doesn’t always result in the market falling, and vice-versa.
Now this doesn’t mean you can’t profit from news at all, I’m simply suggesting that there’s a stronger edge in waiting for the dust to settle
Some of these expensive trading habits can be easier to spot than others, just as some can be more damaging than others.
It’s vital to not get caught up in the idea that you’re going to make $100k a year from a $10,000 account. Instead, focus on adhering to your trading process and set your goal to keep risk low and make small, consistent profits over time. Ditch the “all or nothing” attitude.
The most successful traders know that 99% of their time is spent sitting on their hands, and they’re quite ok with that. Having the patience to wait for only the best setups is what takes your trading to the next level. Resist the urge for constant action.
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