3 Common Trading Mistakes You Should Avoid

As a trader, you want to become consistently profitable and avoid trading mistakes as fast as possible. Some trading mistakes are too subtle for you to notice which is why I want to discuss them here.

1. Closing Trades Out of Fear

You have surely experienced this before: You got into a trade, took a quick profit, only to see the market run and run from there. You’re left behind scrambling to find a re-entry.

Let a trend run its course. You will never make a meaningful profit if you’re always quick to sell. If you consistently miss out on huge profits because you keep a tight stop, you’re probably too fearful. Also don’t close a position because it’s “too high”, or because “anything can happen”. Huge profits are your breadwinners, so hold onto a trend until you have enough evidence for a reversal.

When prices trend up, you stay long. When prices start to trend down, you reverse short. If a reversal turns out to be false, have a re-entry strategy.

Stop predicting where prices will go next, but follow a trend as it is given to you by the market. Don’t force your beliefs onto it. Newbie traders love to hear predictions, so do news pundits on CNBC. They thirst for absolute certainty but the truth is that you will never have absolute certainty when dealing in financial markets. It’s a bitter pill to swallow.

You need to work on a systematic process with trading rules that promise a statistical edge over a long period of time. You can achieve this by

  • maximizing your risk-to-reward ratio for every trade (let winners run), or you can
  • minimize your risk per trade by losing as little as possible (close losing trades fast).

Ideally, you aim for both and can come out profitable even with a 40% win ratio. Trust your trading rules and trust the process.

You should seek out an experienced trading mentor if you’re still not profitable. There may be other factors preventing you from succeeding. A mentor will point them out and correct them.

2. Waiting For Endless Confirmations

Take a recent downtrend that I shorted back in February. I was watching the price action between bulls and bears at a critical level and expected a bounce back. Instead, bulls simply let the bears cut through it. It was a defeat and a sign for me to reverse short immediately.

Don’t wait until every single indicator confirms your move. Going short immediately and placing a stop at a nearby peak meant a tiny risk for me. Newbies, however, hesitated because the MACD didn’t crossover yet. They stayed away because the RSI has flattened. It’s ‘mixed signals’ everywhere. By the time they finally realize that they should have gotten in, the risk-to-reward ratio already shifted badly against them.

Bears crashed prices further down until March. While profits from my short position increased day after day, newbies watched the price action in disbelief. Their charts are cluttered with indicators in hope that they can give them definite answers. Without realizing it, indicators have become an excuse for not pulling the trigger.

Get indicators out of sight once and for all because there’s no substitute for price action.

3. Being Misled Into Day-Trading

Quick profit schemes are a dangerous allure and detrimental for long term success. Depending on which numbers you believe, 70–97% of day-traders lose money. It’s a fact.

Nevertheless, day-trading ‘gurus’ on social media will tell you that it’s the easiest thing in the world. They promise that Jesus will descend from heaven and personally help you make thousands of dollars a day — and of course, anyone can succeed. It’s guaranteed. Who is so naive to fall for that?

The trading community popularizes another myth that it was bad to hold futures contracts overnight. Apparently, that is why people day-trade futures. They’re afraid that they cannot get out of a position when the market gaps down 20% overnight. When did that ever happen with an entire equity index? The reason you can hold futures contracts overnight is the same reason you can hold any other instrument overnight. It’s the only logical way to trade and one of many reasons why disgruntled day-traders value my trading signals.

Face it: Futures contracts are simply too large for a $5,000 trading account. Trade an instrument that’s more suitable for your circumstances, like an ETF. If that is the only way for you to sleep at night with an open position, so be it. At least you have yourself under control.

People take these myths at face value. It’s no wonder why they are being misled into day-trading and finish the day exhausted, licking their wounds one after another.

Trends don’t come and go by the day but take weeks and months to unfold.

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About Matt Hagemann

Matt Hagemann

10+ years trend following experience. I help futures traders make consistent profits without stress and without day-trading.