7 trading demons that will steal your soul - Trader's Nest (2024)

7 trading demons that will steal your soul - Trader's Nest (1)

It’s Halloween tomorrow. So we’re off on a journey into the ‘dark underworld’ of trading…

There are many ways to complicate the trading process and mess things up. And I wanted to get them all laid out in the open today.

To beat these trading demons means recognising them, and then getting to know their quirks. Only then can you take the right action to escape their clutches!

You might spot demons you have battled in the past, and you might notice things you need to be wary of falling foul to in future.

Either way, it’s best to know your enemy.

The 7 demonic acts of traders

1. They don’t respect the market

Headstrong traders make the mistake of thinking perfectly aligned set-ups can’t fail.

Well, they can!

“Listen to the market. It’s always right, even when it’s ‘wrong’!”

Never underestimate the market’s free flowing nature – no single trading event comes with a guarantee. Take whatever hand is dealt to you on each trade with gratitude. It’s all just a numbers game so recognise that 5 out of 10 otherwise perfect setups can result in losses yet you can STILL walk away with big profits.

2. They trade for accuracy instead of consistency

Get talking to a trader struggling with his results and I can almost guarantee he’ll give himself away by the things he says…

Sometimes he’ll be more interested in being proved ‘right’ than he is in making money. Bragging rights are nice – “yeah, I win on 90% of my trades” – but that’s only part of the picture. It’s how much money those trades bank that’s important! You can ‘win’ on 9 trades out of 10 and still lose money!

3. They have unrealistic expectations

Yes, it IS possible to start with a tiny account and balloon it into six figures inside 12 months. You’ll hear stories of traders doing it and they are true. But these are tales of the spectacular rather than the normal.

Instead of chasing the improbable – and hurting your chances of long term success – why not prepare to get rich a little more slowly? Stay in the game for the long term and enjoy the journey as you go.

4. They give up too soon

An offshoot of having unrealistic expectations is that many traders give up far too easily.

To make progress in any new skill – especially one as potentially lucrative as trading – I’m sure you’d agree it’s best to give yourself a proper chance to learn the ropes.

So instead of aiming for insane profits straight out of the gate, shoot for a discipline based goal instead: “I will take each and every trade presented by my strategy for at least 60 days before reviewing my performance”.

It’s a way to remove the distraction of monetary goals (and the only way to hit them is by applying a disciplined approach anyway so you might as well go straight to the source!)

5. They overtrade

This heading covers a number of sins…

The trader who increases his usual volume size in an attempt to squeeze maximum profit from a particular trade is overtrading. The trader who takes the odd additional punt because the market ‘looks like it’s going up’ is overtrading. The trader who launches a frenzied revenge campaign against the market following a single losing trade is DEFINITELY overtrading.

And a common one…

The trader who trades to relieve his itchy trigger finger is overtrading.

He might simply feel bored from watching a flat, listless market. Or he might be responding to a misplaced need to proactively ‘get busy’. Taking constant action might be an admirable trait in the ‘outside world’ but it’s not really relevant when it comes to trading.

6. They don’t manage risk properly

Equal position sizing is so important in order to achieve consistent results in line with what you’d expect from the profitable edge of your system.

Ideally, you’d risk an equal amount of your account on each trade. If you always risk an equal amount of pips on every trade you can use a fixed stake – £1 per pip, for example. But if your trades risk a different amount of pips each time, you’d need to adjust your staking accordingly.

For example: Trade A might have a stop loss of 50 pips and be staked at £1 per pip. But trade B, with a stop loss of 100 pips, would be staked at 50p per pip in order to assume the same £50 net risk.

It would be no good using level stakes of £1 per pip on both trades because the risk on trade B would be £100, twice as much as trade A!

7. They are not willing to adapt to changes in market conditions

You can only trade what you see on the chart i.e. what is happening in the market today.

Be aware of historical activity, it does have a habit of repeating, but understand that the tone of the market can change week to week, month to month, season to season. So don’t expect the same set of tactics to carry on working in the same way for evermore.

It’s a mistake to not expect the markets to cycle through their different phases.

It means you might need to adjust your strategy to take changes in conditions into account from time to time (low volatility summer markets for example) and you might even have separate strategies ready to deal directly with different market conditions.

Do you have any tips that might help other traders deal with common demons?

Any glaring omissions you think I should include?

Send me an email and let me know – [emailprotected]

Until next time…

Greetings, fellow trading enthusiasts! As someone deeply immersed in the intricacies of trading, allow me to navigate through the article's concepts and shed light on the dark underworld of trading demons. My experience in the financial markets and understanding of the nuances involved in successful trading will provide you with insights and strategies to overcome these demonic acts.

  1. Lack of Respect for the Market: The author emphasizes the importance of respecting the market's nature and its unpredictability. This aligns with a fundamental principle in trading - the market is always right. Despite perfectly aligned setups, the absence of guarantees should be acknowledged. I stress the significance of adapting to the market's flow and being prepared for unexpected outcomes.

  2. Trading for Accuracy vs. Consistency: The article rightly warns against the temptation of seeking accuracy at the expense of consistency. Winning percentages can be misleading if they don't translate into profitable outcomes. Traders should prioritize making money over being right, focusing on a robust strategy that ensures long-term gains rather than short-term bragging rights.

  3. Unrealistic Expectations: Setting achievable goals is crucial in trading. The article discourages chasing improbable success stories and advocates for a more realistic, steady approach. This aligns with the understanding that trading is a journey, not a sprint. I would emphasize the importance of patience and long-term planning to achieve sustainable success.

  4. Prematurely Giving Up: Unrealistic expectations often lead traders to quit prematurely. I agree with the recommendation to set discipline-based goals, such as committing to a certain period of consistent trading before evaluating performance. Patience and perseverance are essential virtues in mastering the art of trading.

  5. Overtrading: Overtrading is a common pitfall that the article identifies. Whether driven by boredom, impulsivity, or revenge, it can erode profits. I would stress the need for a well-defined trading plan and the discipline to stick to it, preventing unnecessary trades that deviate from the established strategy.

  6. Improper Risk Management: The article rightly underscores the importance of proper risk management, specifically equal position sizing. Managing risk ensures consistent results aligned with a trader's profitable edge. I would add that understanding the risk-reward ratio and adjusting stakes accordingly is essential for long-term success.

  7. Resistance to Adapt to Market Changes: The article concludes by highlighting the necessity of adapting to changing market conditions. This aligns with the reality that market dynamics evolve over time. Traders must be flexible and ready to modify their strategies to accommodate shifting market phases.

In closing, successful trading requires a blend of discipline, adaptability, and a realistic mindset. Recognizing and overcoming these demonic acts will undoubtedly contribute to a trader's long-term success. If you have additional tips or insights, feel free to share them, and let's continue our journey through the intriguing world of trading. Happy Halloween, traders!

7 trading demons that will steal your soul - Trader's Nest (2024)
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