10 Fatal Flaws

Let's take a little pause before we continue on. Here are 10 fatal errors made by misguided traders who are destined to fund the accounts of more skilled traders.

  1. A trader must have a trading plan with well-defined entries, exits, and position size before they make any trades. Trading with no plan creates random results, and the profits that are won as a result of chance will eventually return to their rightful owners.
  2. Traders must have an edge to be profitable. The traders that have discipline, have done their homework about historical price action, and stay in control of their emotions will make money.
  3. The biggest mistake that the majority of traders make at all levels, is that they trade too big. Big position sizes cause emotions to run high, infringing on reason. Big losses are also more financially and emotionally devastating. The position size of a trade should never put a trader’s lifestyle or trading career at risk.
  4. When the markets open, the trader must have the discipline to follow the plan they created when the market was closed. No system will work if the trader does not have the discipline to follow it.
  5. When a trader’s desire to be right is greater than the desire to make money, they will illogically let a losing trade run to avoid admitting that they are wrong.
  6. Fear of giving back a small profit will cause a trader to miss a bigger winning trade. Most profitability is based on the big winning trades. A winning trade should not be exit until there is a good reason to do so.
  7. If a trader does not take their original stop loss, they will allow small losses to become big losses. Big losses generally are what cause a trader to be unprofitable. Many good trading systems become profitable simply by removing the big losses from the trading results.
  8. Traders that do not account for events outside the known bell curve can be ruined. Events that have never happened before can happen. Hedges, stop losses, and position sizing are the insurance policies against the sudden risk of ruin.
  9. Traders with too much hubris will eventually make a decision that insures a fatal trading result.
  10. Personal predictions have no value, because the future does not exist in the present moment, no matter how strong a trader’s convictions.

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