Trading Tips for Success – What Not To Do

The 7 Deadly Sins of Trading

1. Over-trading

If you are trading 50 times per day, you are over-trading. Using a 5-minute chart, you should find up to five high-probability opportunities each day. If you are taking every trade, day and night, every setup and not choosing the best setups, your win to loss ratio will suffer. I do not know any trader who trades 50 times a day and is doing better than the traders I teach who look for three to five trades per day on a 5-minute chart. I typically advise my students to stop trading after a few winning trades. Have you ever traded in the morning successfully only to give it back in the afternoon? You are not alone! It can be difficult to stay out of the market. You should only be in the market if the conditions are ideal and a setup has occurred. If you are a scalp trader, remember that 20 solid trades during the most active time of the day will always be better than 50 trades that have nothing to offer.

2. Over-analyzing

When trying to interpret the market, traders confuse themselves by paying attention to newsletters, pundits, and historical trends. They are often too paralyzed to trade, or read too much into their own expectations. In many cases, these traders would be better off observing the market for what it is. "Keep it simple" has never meant as much as it does now. With all the news services and outside influences offering opinions, how in the world can any trader really understand what they should or should not be doing? My advice is to turn it all off and get back to basics. What is the market really telling you? What is the situation at hand? The methods taught in every course and in the Mentorship Program focus on tuning out the noise and understanding using objective rules. Avoid heavily analysis because it leads to confusion!

3. Can't be wrong

Who wants to be wrong? The answer is no one. Pride, ego, fate – you name it, the negative consequences can't happen to me, right? Here's some news for you – you can be wrong and you will. The hardest part of trading is taking losses and moving forward. Yes, you will have losses, and yes, you will recover. There is life after taking a losing trade. How you approach a losing situation can make or break you. If you have the opportunity to exit a trade at a loss of a few ticks, or even a few points, by all means take it. I consider the stop loss strategies I teach to layers of protection against unnecessary large losses. Do not be afraid to take a loss based on the rules. Many traders hold on to a losing trade far longer than necessary, creating huge loss instead of a small loss as taught in our training programs. Do not be afraid to exit a trade and recover on the next trade!

4. Multiple time frames

When a trader calls or emails me, I like to discuss how they currently trade and if I can help their success rate. Believe it or not, the multiple time frame idea is very popular. Many traders tell me they use many charts, each with a different time frame, to confirm entries. Let's think about this multiple chart scenario. If you have eight charts (e.g. weekly, daily, 60-min, 30-min, 15-min, 5-min, 3-min, 1-min), by the time a Long or Short setup is confirmed on the 1-min chart, the trade is over. Timing is key. If you have to switch between your charts to see if all of the stars line up, you will likely miss out. If you want to rule out possible bad trades, instead think about a variety of setups on one chart. For example, on a 5-min chart, my students look for all the trading setups that can possibly occur at a given moment. This creates a system of positive indicators that a particular direction or entry point is correct, versus lagging yourself behind other traders by sifting through multiple charts.

5. Trailing stops

Home run trades are not common. As a trader, trailing stops are a good idea on paper, but in the real world, often result in break-even trades. The market tends to produce trending days for about 15% to 20% of a given year. As a trader, the expectation is to make a consistent profit instead of looking for that homerun day, which is like Christmas coming once a year. Stops are often so tight the trade gives everything back. Often times, trades take hours, if not days, to materialize into anything worthwhile. Successful traders get in, get out, and are done. On days when volatility is very high (check out my ATR video), yes, you have a higher chance of taking more out of the trade. If you can consistently take out a few point s daily – great – do it! If you are always waiting for that trending day that seems to never come, you are not alone. Being consistent day-in and day-out is the goal!

6. Too many indicators

Yes, I am talking to you as you read this article alongside your chart of 20 indicators. Although your chart may look pretty, your indicators are absolutely useless. If you are like 95% of traders who love indicators, you are making a mistake! MACD, Moving Averages, Fibs, Bollinger Bands, Momentum, Channels, Stochastics… Yes, the list goes on and on. But wait, let's just add another moving average and see if that helps! Your charting platform has over 100 indicators pre-installed to make you feel as if you can find the perfect combination – the holy grail of perfect values optimized to curve fit any data. The reality of using all these indicators on your chart with different combinations and colors results in a big mess of clutter. You are now more confused and more determined to find the perfect combination. Stop for a moment and think about how professional traders adapt to market conditions as they change. I have never heard a professional trader ask another where the stochastic is. Instead, the pros look at two things: price and time. Simply, but that's it! I do not use or teach any method that utilizes any standard indicator except for a price countdown timer (BarTimer in NinjaTrader) and the ATR (Average True Range). Both are tools of price and time, which provide more information than the 20 indicators plotted on your charts. Don't feel bad – just lose the clutter. Get to understand manipulation and use clear, concise rules to enter, exit, and manage any trade based on price and time. Check out the free ABC trading method or the free news trading method I offer which will get you started.

7. Unrealistic expectations

Lastly, the 7th deadly trading sin is one of the most common. Get out the calculator and tabulate risk to reward, 10 points per day of profit on 20 contracts multiplied by 21 trading days times the number of months minus the number of holidays and make the mistake of assuming the millions of dollars you'll be making. Yes, it does sound like a crazy expectation, but this is exactly how some traders believe it works. Let's take a step back. Start small, slow, consistent, and gain confidence to grow. Yes, you can trade 10 or 20 contracts, but do not do so every day and certainly not on every trade. Slow and steady wins the race. Over time, you can reach the goal you want, but your expectations should be realistic. For example, let's pretend the market is slow – a whipsawing Friday afternoon. Do you think the trade you are about to take will be a 20 profit homerun? On the other side, the FOMC is about to release data, Options Expiration is around the corner, and volatility is off the charts. Go ahead and bet the farm and double-up. How can you be wrong? Disaster is about to happen. Expectation is not in line with the outcome. Start small – one contract. Work your way up to two, then three, and so on over time. Understand that market conditions will vary and you must adapt to any condition. This can mean less trading, more trading, or not trading at all because of more risk than benefit. As a trader, it is essential that you not have profit-specific daily goals that force you to trade under pressure. Think and adapt to the current conditions. Look at success as a whole over a month or even six months. Look at the consistency in which you are successfully picking and choosing optimal opportunities to trade if and when they present themselves.