By Darrell Martin
As a new trader, it is sometimes hard to take a step back and evaluate the mistakes that are causing the failure seen during the trading day. Perhaps, the goal is to find more success, so a quick analysis of the trades taken helps to achieve that goal. This series identifies the most common mistakes made by new traders in the hopes that if the mistake is realized, it can be corrected and made into profitable trading.
Trading Journal: The opening paragraph mentioned analyzing trades. As a trader, take the time each day to analyze trades made that day. Write down answers to the following questions:
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What did I do right?
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What did I do wrong?
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What should I repeat?
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What should I not repeat?
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Was it a news day and if so, how did it go?
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Do I want to trade those news events again?
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Analyze your charts. Mark them up.
Be able to still be trading in 12 months, not just 12 minutes, 12 hours or even 12 days.
Social Interaction: Traders often hate their day job and dream of trading for a living. The dream is “to work for yourself,” but a trader cannot work alone. It is important to have social interaction while trading. Get involved in a trading forum or live trading chatroom. When trading the same system or instrument, bounce ideas off one another, this helps rules to be learned and mastered. One of the best ways to learn something is to teach it. By answering another trader’s question in a chatroom, rules of the system are solidified for the trader.
Know When To Stop For The Day: Treat trading as a business with a plan knowing when to stop for the day. It is easy to let greed step in and watch it walk away with all the profits. A good rule to follow is the five percent rule. Account size does not matter. Large or small, determine five percent of the account. When trades have profited five percent for the day, STOP. If trades have lost five percent, STOP. Suppose the account size is $1000. The daily amount for the month is $50. This may seem like the account will never increase by only making $50, but suppose the rule is not followed and in one night of trading, the account loses $500? Half of the account would be gone!
If the five percent rule is stuck to for a month of trading, 20 days, with a $1000 account, it would double, provided there were five percent profits every day. Then, with a $2000 account, five percent is $100 a day that can be risked. Do not trade longer; simply trade two contracts instead of one. The next month, the account has doubled again to $4000. It is all about compounding, sticking to the five percent rule and being patient.
Being Impatient: This is one of the most common reasons new traders fail. Perhaps new traders have the impression that they can put in $200 and make $1000 after watching a 10-minute video. Other traders do not realize the importance of patiently trading a demo account until they are familiar with a system or strategy. Instead, traders jump in impatiently trading with live money and their trading accounts are soon wiped out.
Learn from mistakes. Set up for success. Free education is available at www.apexinvesting.com.