Some Common Trading Pitfalls

Some Common Trading Pitfalls

April 24, 2018

Not Calculating Risk

If you find yourself entering positions without a level of risk, this will lead to big losses, even on small
positions. Losing 50% on a trade can turn into a huge downward spiral.

How to Avoid This:
  1.     Know the area of support (vwap, moving average)
  2.     Don’t risk over 3-5%
  3.     Know your monetary loss per trade

No Stop Losses

Without stops, quick price wings can make for large losses, which could have been preventable. Nobody
wants a loss; but digging in and hoping for the tide to change is not the answer. Stop losses help you to
manage emotions and establish a game plan so that you can be disciplined.

How to Avoid This
  1.     At a bare minimum, have a mental stop
  2.     If you don’t trust yourself on a mental stop, set a stop at a price so that you are forced to take it.
  3.     Set stops at nearest support or just below
  4.     Move up stops as the price moves up

Trading Too Much Capital

You know you’re trading too much capital when you are risking more than 50% of your trading account.
This is a very stressful style of trading as you are over-utilizing capital per trader.

How to Avoid This
  1.    Trade capital you are willing to risk losing entirely
  2.    As your account grows, you can scale to 10% of risk per trade of capital
  3.    Newbie traders should not margin too large

No Strategy, No Process

You have no routine, think of yourself as a ‘jack of all trades but a master of none’. You seem to be all
over the place and never really know why you’re taking a trade. You have no idea what works and what
doesn’t. You lack a plan and without one, you fail.

How to Avoid This
  1.   Cut back on the patterns that you are trading; information overload is disruptive and unproductive
  2.   Find 1 or 2 patterns and stick with them
  3.   Develop consistency and profit, then gradually add a different pattern

Thinking It’s Easy

It looks easy because you see others doing it and making money. So, you jump in without any
preparation. You lack skill. You think this is easy money and that you don’t need to study or make any

How to Avoid This
  1.    Log your trades and analyze what worked and what didn’t
  2.    Ask questions during the chatroom Q and A session
  3.    Take your time – patience is key
  4.    Read as much as you can. The internet has tons of free information about moving averages, VWAP, indicators
  5.    Mark your charts with moving averages, support and resistance levels
  6.    Newbies should paper-trade until they are consistently profitable.