HE ULTIMATE LIST OF PROVEN STRATEGIES TO OVERCOME BAD TRADING HABITS
Welcome Traders!
Thank you so much for the overwhelming response on my first article even if there were a few typos and a couple math errors. If you haven’t had a chance to read it yet, it was the Ultimate Blueprint For Risk Management and is the foundation for this technical analysis series and it can be found here:
First off, if you're new to me, my name is Jacob Canfield, one of the top ranked author's on Trading View and this is the 2nd piece in my FREE technical analysis series for traders.
The FIRST thing you should do is make sure you follow me because I want to make sure you get all of my posts when I post them. All you do is highlight over my image and it should give you a little ‘follow’ option.
Second thing, before we get into it is to go like this chart so that you can help others get this information too!
Did you do it?
Okay, great!
Thank you so much and I appreciate you.
It means a lot to know that my work is being appreciated by you and it gives me encouragement to keep making more.
Now I know what you’re thinking, risk Management and overcoming bad trading habits are soooooo boring!
In your mind, all you’re really thinking is JUST SHOW ME HOW TO MAKE WINNING TRADES!!!!
We will get to that, I promise. The road to profits and being a winning trader is paved with mistakes and I want to accelerate that process for you with this series.
Do you remember the movie the Karate Kid?
Think of me as your Mr. Miyagi and we’re learning how to take down Cobra Kai with a crane kick at the end of the movie. BEFORE we get into winning trades and strategy and all the fun stuff, we first have to master the building blocks. First, we covered risk management, now we’re going to cover emotion and trading.
Think of this guide as your ‘Wax on, Wax off’ moment and you’re going to have to paint a fence for the next few days. So when it comes to emotion, a lot of veteran trader’s say “eliminate emotion” from your trading.
That’s pretty dumb and trading would be boring as hell if you had no emotion.
A better way to think about it is to learn how to recognize the emotions and embrace them for what they are. Learn to control your emotions and set strategies in place to keep you from self sabotaging because of them.
So what are you going to discover in this guide? 1.) Why your trades fail 2.) Why being objective is so vital to staying profitable 3.) What happens to traders who are not objective 4.) How to keep yourself in an objective state of mind 5.) 10 Bad Trading Habits That Keep You From Being A Great Trader 6.) Emotions Associated With Those Habits 7.) Strategies To Overcome The Bad Habits
Now, on to the topic at hand.
EMOTIONS AND TRADING: For newer traders and sometimes even veteran traders, these to things go to together like peanut butter and jelly that is, if the peanut butter caused the jelly to lose all their money.
Bad joke, I know, but in all seriousness, we are going to dive in to the Importance of being objective after losing a trade.
The following are a list of phrases emotional traders say: “I should have” “I would have” “I could have” “I was right!” “I shouldn’t have listened to them” “If only I”
Being a trader is about being able to move past previous trades and focusing on the present.
FOCUS is the #1 trait you have to be a successful trader and it’s the most important tool in your tool chest.
Remember when Daniel caught the fly in Karate Kid? Well, focus was how he did it. So, let’s grab some chopsticks and focus up for the rest of this article.
WHY DO TRADES FAIL? 1.) Our setup fails: Even the best traders understand that a setup can fail no matter how good or promising it looks. 2.) Emotions: We get fearful when see our trade in the red, and get greedy when they are in the green. These emotions can cause us to lose more trades and miss opportunities on trades for larger profits. 3.) We don’t stick to our trading strategy: Straying away from our trading strategy and taking trades we shouldn’t can lead to an influx of failed trades. 4.) Biased trading: Only focusing on one perspective without seeing it from the other end of the trade can lead to more failed trades, as our confirmation bias tells us “that other thing won’t happen.” Always consider every angle before taking a trade.
Learning to become objective after a trade is very critical to long-term trading success, and it is important to maintaining your trading capital. Losing sucks; no one disputes that.
To become a better trader, you have to understand WHY the trade failed, and consider what we ourselves can do better next time to prevent repeating the same mistakes.
I found that keeping a trading journal with a notes section to be very helpful in dealing with losing trades; as I can write down what went wrong and what I can do better next time.
A very simple journal you can make in Excel right now should have the following: 1.) Balance: 2.) Amount Used Per Trade 3.) Asset (crypto or forex or stock) 4.) Entry 5.) Exit 6.) Profit/Loss
Notes: (use this section for the outcome of the trade and why you think the trade went the way it did.) Under the notes section, you can keep reason for entry as well as reason for closing.
You can build much more advanced journals with win ratio, expectancy, time duration of a trade, etc.
The key here is to NOT get over complicated and just get a SIMPLE journal going to start monitoring your trades.
This is where it’s VERY IMPORTANT to be brutally honest with yourself at ALL times. There is no room for lying to yourself and justifications when it comes to trading.
You can save that for Twitter, like all the other professional traders.
Failure to be objective and honest with yourself can lead to irrational and tilt-orientated and gambling like trading habits and trading patterns.
WHAT HAPPENS TO TRADERS WHO ARE NOT OBJECTIVE?
1.) Over-trading: After losing a trade, some traders will look for any opportunity to make their money back quickly, even if the setups do not fit the criteria of their trading system. 2.) Revenge Trading: Doubling/Tripling down on the following trade in a bid to “make the losses back easier.” This is dangerous as you are now risking a lot more for the wrong reasons, and are likely entering the trade for the wrong reasons (this is also referred to as revenge trading.) 3.) Flip-Flopping: Constantly changing your stance after losing trades is dangerous, as a trader can initially be right about the trade, but loses the trade due to other variables. This can tie in with the emotional side of things as well.
Traders who are not objective and let their emotions control their decisions will do anything to get back lost money, and they will continue digging the hole deeper trade after trade until they run out of capital to trade in hopes of “hitting a big one” that makes it all back.
HOW TO REMAIN OBJECTIVE: 1.) ALWAYS use a stop loss when trading. This keeps you from sabotaging yourself. 2.) Create a risk management strategy that works for you. (Risking only 1% per trade, etc.) 3.) Stay consistent with your strategy and create a punishment system when you break your rules. (no trading for a day, lowered position sizes, etc.) 4.) Understand losing is a part of trading: Every single trader has lost a trade. It is the nature of the space. 5.) Look into why the trade failed: understand what went wrong and what you can do better next time to prevent yourself from replicating these mistakes on other trades 6.) If the trade setup had a favorable risk/reward, understand that losing trades that have a constantly good risk/reward will work out in your favor in the long-term. No one is right all the time, but a 40% win-rate trader taking favorable risk/reward setups can make money in the long-term. 7.) After losing a trade, take a break if you’re not in the right mindset to continue trading for the day. Otherwise you risk tilt-trading or forcing trades that do not have favorable risk/reward and or do not fit your trading criteria. 8.) Keep your emotions in check: Do not let emotions dictate how you trade, as they can make you trade irrationally. 9.) Always be willing to learn and grow yourself as a trader: In every loss is an opportunity to learn something. Make each loss a learning experience, and in the long-run, you will become a much better trader. 10.) Have a process for after you make bad trades or good trades. After I have a really good week of trading, I usually take 1-2 days off to clear my mind. I do the same after I make a really big winning trade. If I lose more than 2 days in a row, I always take the 3rd day off. I try and not look at any charts and instead do something else that’s productive.
Now, on to the part you’ve all been waiting for.
10 Bad Trading Habits Driven by Emotion and Strategies to Overcome Them.
Bad Habit #1: Sticking With a Trading Strategy And System Even When It’s Not Profitable EMOTION: HOPE AND GREED Strategy: I see this happen time and time again. Once you find something that’s working really well and gives you an edge, you tend to stick with it far too long and your edge is gone but it made you so much money that you continue using it hoping that it starts to work again. This can be a moving average cross over, an RSI divergent strategy or a fib retracement pull back. The key is to constantly monitor your strategy for profitability by keeping strong records and journals of your trades and your profitability using your strategy. The more data, the better so that you can know when it’s time to tweak your strategy or find a new one altogether.
Bad Habit #2: Taking profits too early before your trading system tells you to.
Emotion: GREED AND FEAR
Strategy: We’ve all seen the day trade scalpers that kill it in forex using 1-3% profit trades over and over. This is ONE style of trading and it’s very important that you don’t mix it with YOUR style of trading. Use a trailing-take profit strategy where you move your stop loss below strong supports as the trade moves in your favor, or have confidence in your analysis and let the trade play out until it reaches your target zone. One easy fix if you’re a swing trader is ALWAYS stay zoomed out on your charts on a daily analysis if you’re swing trading and don’t watch the charts all day. Swing trades are meant to be patient and take some time to develop, which allows you to have a life outside of trading.
Bad Habit #3: Risking too much capital on a single trade.
EMOTION: GREED AND HOPE Strategy: Determine ahead of time what your risk per trade is and use a formula to always calculate your position size. The less emotion that goes into determining a position, the better. By using formula’s, you’re sticking to probabilities and math rather than emotion and ‘eye balling’ it. Proper discipline and risk management will keep you in the game and make sure that you are don’t burn your account over a couple of bad trades.
Bad Habit #4: Increasing stop-losses if a trade starts going below your entry and gets closer to your stop instead of just cutting losses when your trading strategy says you should and your trade idea was invalidated.
Emotion: FEAR
Strategy: Discipline is the name of the game. A stop loss is designed and set when you enter a trade when your trade thesis is invalidated. By allowing your trade to move lower than your stop loss, you will negatively affect your RR (risk/reward) in the long run and this will greatly affect your ability to sustain profitability. Be strict in your trading actions; set guidelines and follow them. If the amount of money you’ll lose on a stop loss has you fearful, then reduce your position size and try not to deviate from your trading strategy.
Bad Habit #5: Increasing the zones where you would normally take profit in a bid to make more money, instead of just exiting when your trading strategy says you should.
Emotion: Greed and Hope
Strategy: Your trading strategy exists for a reason. There is a difference between raising your targets as the trade progresses and changing your exits based on emotion, rather than technical reason. Get used to taking profits out of the market and moving on quickly to a new trade.
Bad Habit #6: Entering into trades too early; or without proper confirmation that abides by your trading strategy.
Emotion: GREED AND HOPE Strategy: Entering into a trade too early without it lining up with your trading strategy to try and squeeze some extra profit out of the trade demonstrates you’re trading on greed and hope again. To correct this, create a check list that you have to MANUALLY check off each time you enter a trade. This ensures that you stick to your trading strategy instead of going off emotion or against your trading strategy.
Bad Habit #7: Letting a trade go from profitable to losing money and hitting stop losses.
EMOTION: HOPE AND LACK OF FOCUS
Strategy: Have a daily system where you run through your open trades and make sure that you are consistently monitoring them to see if the market is shifting or changing that would effect your trade. Set alerts on trendlines in trading view that would allow you to be quickly notified if the trade moves against you. The worst feeling is to have a trade nearing your take profit zones only to give back all of the gains and then lose money.
Bad Habit #8: Always feeling like you need to be in a position.
EMOTION: GREED AND HOPE Strategy: Understand that NOT being in a position is also a position. My favorite lesson is that there will ALWAYS be another trade. If you have the feeling like you always need to be in a trade, I would recommend just pulling all of your capital and sitting on the sidelines for a day or two to get over the emotion of feeling like you’re missing out on something. “Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win” The trade is won on the preparation and the set-up. We enter trades only when we find ideal set-ups BEFORE and not after.
Bad Habit #9: Staying stuck in one trading bias. (either bearish or bullish.)
EMOTION: Fear and/or Hope Solution: I see this a lot in crypto because of the HODL mentality. I also see this because a lot of newer traders don’t know what or how to ‘short’ a market. For this habit, I highly recommend looking at EVERY trade you take from both sides of the coin. If you’re taking a long position, ask yourself, if I was going to take a short, what would be my criteria be and the same goes for if you’re in a short position. You’ll want to think about what would it look like if you were taking a long position.
Bad Trading Habit #10 – Not taking a trade, even if it aligns with your trading strategy and trading criteria.
Emotion: FEAR
Strategy: Have a list of things to check over before entering a trade to verify the trade aligns with your trading strategy and trading criteria. That’s it guys!
Thanks for reading and I really hope you’re getting something out of these.
My next post will be on the art of setting stop losses. I think this one will be a big hit, so make sure you click that follow button to get notified when it drops.
لا يُقصد بالمعلومات والمنشورات أن تكون، أو تشكل، أي نصيحة مالية أو استثمارية أو تجارية أو أنواع أخرى من النصائح أو التوصيات المقدمة أو المعتمدة من TradingView. اقرأ المزيد في شروط الاستخدام.