Many people think trading is the simplest way
of making money in the stock market. Far from it; it is the easiest
way of losing money. Successful traders recognise that money cannot
be made equally easily all the time in the market.
There are some ways of undisciplined trading which lead to losses.
Guard against them, or the market will wipe you out.
1. Trading during the first
half-hour of the session
The first half-hour of the trading day is driven by emotion,
affected by overnight movements in the global markets,
and hangover of the previous day's trading.
Most experienced traders simply watch the markets for
the first half of the day for intraday patterns and any
subsequent trading breakouts. 2. Failing to hear the market's message
Hearing the message of the market can be particularly
important in times of significant news. The market generally
reacts in a fashion contrary to most peoples' expectation.
3. Ignoring which phase the market is in
It is important to know what phase the market is in --
whether it's in a trending or a trading phase. In a trending
phase, you go and buy/sell breakouts, but in a trading
phase you buy weakness and sell strength. 4. Failing to reduce position size when warranted
Traders should be flexible in reducing their position
size whenever the market is not giving clear signals.
5. Failing to treat every trade
as just another trade
Undisciplined traders often think that a particular situation
is sure to give profits and sometimes take risk several
times their normal level. This can lead to a heavy drawdown
as such situations often do not work out.
Every trade is just another trade and only normal profits
should be expected every time. 6. Over-eagerness in booking profits
Traders should not be over-eager to book profits so long
the market is acting right. Most traders tend to book
profits too early in order to enjoy the winning feeling,
thereby letting go substantial trends even when they have
got a good entry into the market. 7. Trading for emotional highs
Traders need to keep a high degree of emotional balance
to trade successfully. Trading should be avoided in periods
of high emotional stress. 8. Failing to realize that trading decisions are
not about consensus building
Trading is a loner's job. Traders should not talk to a
lot of people during trading hours. They can talk to experienced
traders after market hours but more on methodology than
on what the other trader thinks about the market.
