The Number One Mistake Traders Make

Dec 5, 2018 | Trading

The question that I get asked quite often is “what’s the number one mistake that traders make?” The question is more complex than it looks like, because oftentimes mistakes happen in pairs. The usual culprits such as undercapitalization, poor analysis, poor risk management, or even a lack of a robust trading strategy. While all of these certainly would be in the running, I think the answer could come down to one thing: a complete lack of patience.

Patience matters more than anything else in trading

I’m willing to bet that many of you were going to say that the number one mistake in Forex trading is improper position sizing. That’s the standard de facto answer that most analysts and Forex pundits give. Granted, that is a crucial problem with most retail traders, but even that can be whittled down to simply being a complete lack of patience. After all, think about what is causing improper position sizing: it’s the “get-rich-quick” mentality. That’s simply a lack of patience at its core.

Lack of a trading system

If you don’t have a trading system, or at least not one that is reliable, it’s probably because of a lack of patience as well. After all, you haven’t taken the time to come up with a system in order to place your trade. You haven’t put in the time to learn technical analysis or anything else that you are going to base your trading system around. Even if you did, have you tested it? A true trading system has been tested and you should be able to understand what the expectancy is. If you haven’t done all of this, you simply are trying to run before you can walk. A lack of patience will cost you money.

Breaking your rules

Let’s say you have done everything correct and have a decent trading system that’s expected to make money over the longer-term. However, you sit down to your terminal in the morning and recognize that there is very little in the way of strong trading setups. Unfortunately, many of you will go ahead and trade anyway, out of the lack of patience. This will cause you to make poor decisions, and certainly lose money as the market will be somewhat directionless, or at least not lined up with your strength. Remember, sometimes we are paid to sit on our hands and wait for a proper set up.

Revenge trading

Revenge trading is a lack of patience personified as well. Why is that? It’s because you’ve taken a loss, and now you are trying frantically to get that money back. Unfortunately, we have all been there. You have taken a trade set up that you thought was valid, but some random event spook the market in took you out. It’s hard not to take these moments personally, and most certainly the first thing you think of is getting your money back. However, by doing a bit of revenge trading you are more than likely going to lose money, on top of your original loss. By not waiting for the next proper set up, you are showing a complete lack of patience, which is deadly when it comes to Forex trading. Remember, once you lose money that’s it. If you do it often enough, you won’t have enough capital to keep going.

You don’t research

While the basics of trading never really change, there are a lot of nuances that you will need to look into. For example, I have recently been trading futures markets, using market profile. This is something that I had never done before, as I come from a Forex trading world, and therefore true market volume is something that’s elusive. Even though I can make money in the futures markets without market profile, I find that it helps me quite a bit. I am currently researching it from a testing point of view, showing that even after years of trading, there’s always something new to learn. In fact, that’s one of the great things about this endeavor: it never stops teaching you, if you are willing to learn. If you are not, trading is not for you.

Not checking in with yourself

A big mistake that I used to make all the time was not checking in with myself. What I mean by this is keeping an eye on my mental state while trading. Quite frankly, some days are simply not good trading days. If you have money on the line and find yourself in a very unsettled state or are simply overly agitated, you need to step away from the markets because they will find a way to push every last one of your buttons. There’s nothing worse than having some external issue cause you anxiety or an uncomfortable feeling while your trading, causing you to wipe out several days’ worth of gains in the short amount of time. I’ve been there, it’s one of the worst things you can do.

Why do you do this? Because you aren’t being very patient. You don’t understand that there is always tomorrow, assuming that you keep your trading capital intact.

The main take away

I know this is going to sound extraordinarily cliché, but trading is truly a marathon and not a sprint. In fact, I’d say that one of the most valuable parts of trading is how many of the lessons will carry on into your daily life outside of the realm of trading if you let them. Learning to be patient is without a doubt one of the main lessons that the market teaches me on an almost daily basis. Patience goes a long way in almost any ailments that a trader faces. After all, if you sit on the sidelines and simply watch things in a calm and rational manner, you could normally find the solution. However, in the heat of the trading session, it’s not always the easiest thing to do or see you.