Top two common trading mistakes and how to deal with them [Video]
|My money was stuck in X, Y & Z and I don’t have excessive money to trade.
This is one of the most common message I get from time to time.
#1 Trading mistake: Trading without stop loss
Most likely, by the time you are aware you are stuck, your drawdown is huge. Instead of risking 2–3% (or even 5% of your capital), your floating losses could be 3–5 times of your risk, which is too painful to cut loss.
“Would I cut at the lowest point? By the time I cut, price will bounce back up, I am cursed!” — This is a common self-talk from a trader.
#1 Fix: Situation varies and it is really chart dependent.
One general rule: if I can’t sleep well at night and still thinking about what would happen to the trade, then I will need to cut loss. Set the stop loss immediately despite it is way too late, analyze the chart and look for opportunity to trail the stop up until stopped out to minimize losses.
#2 Trading mistake: Entry timing is not perfect
Price does not yet hit the stop loss while having minor floating losses. and hopefully the price can bounce back up as per the plan.
#2 Fix: Trading plan with chart analysis
If I’m using HOPE instead of the trading plan is not violated yet, I need to find out the right way to interpret the chart because “hope” should not in the trading plan. If my trading plan is still valid, I’ll stick to it till violation.
If my trading plan has been violated just that the stop loss has not yet be triggered, the chances of having a losing trade is still high and it is just a matter of time to face the consequence.
Opportunity cost for not dealing with these trading mistakes
Instead of hoping for the price to make a U-turn and back to the favorable direction, I’ll exit the trade (if trading plan was violated) and switch to other valid trade setup. In this case, I will make full use of the money hence the money management plus the time spent are efficient.
Else, opportunity cost will kick in. Instead of switching to other great trading opportunities to earn money, I will be wasting my time and money to hope for an invalid trading plan to turn valid (not to mention some mental suffer involved). Even under a lucky scenario, my trade turned out to be a profitable trade, this is pure luck and there is no way to repeat the lucky process.
Focus on what we can control so that we can repeat the success in the long run.
Watch the video below to find out how to analyze the price action of a chart and form a trading plan so that you can act accordingly using Gold miners stocks and Gold futures as case studies:
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