Not Having A Well Structured Trading Plan…This is HUGE!

Experienced traders (that knows what's good for them) get into a trade with a well-defined plan. Something that has been thoroughly tested. They have an edge and they know their exact entry and exit points before entering their positions.Based on their trading plan they also are aware of the amount of capital to trade with. Experienced traders will have a very firm understanding of their “at risk capital allocation” which, in short, is the maximum loss they are willing to take on any given trade.

Too many beginner traders do not have a trading plan in place before they commence trading. Which is a HUGE mistake! Also, in a lot of cases with newer traders, they have a plan, but they may be more prone to stray from the defined plan than would seasoned traders. Novice traders may reverse course altogether and trade too many stocks, too many times, too many different time frames, patterns etc. Trades, in general, need to understand what their trading edge is and stick to it. Develop a trading plan and trade the shit out of it without deviation!

Another HUGE Error: Ignoring Risk Aversion

Do not lose sight of your risk tolerance for your capacity to take on risk. If you don't manage your risk, you risk losing everything…I’m speaking from experience! Your job as a trader is to manage risk first. Profits are the by-product of solid risk management. Traders (long/short…Day or Swing) must be able to stomach volatility…the only way to hedge yourself against volatility is by understanding how to manage risk! If you want to day trade and you can’t deal with volatility you might be better off being a long term investor…dealing in stocks with low levels of volatility, like blue-chip stocks. Remember that any investment return comes with a risk. The lowest risk investment available is U.S. Treasury bonds, bills, and notes. From there, various types of investments move up in the risk ladder, and will also offer larger returns to compensate for the higher risk undertaken.

Not Using Stop-Loss Orders…

That’s A Disaster Waiting to Happen

Dear New Trader,

This one is simple: USE A STOP LOSS ON EVERY TRADE! On to the next point!

Letting Losses Grow

One of the defining characteristics of successful traders is their ability to take a small loss quickly… If a trade is not working out then move on to the next trade idea. Please remember this next point as it will save your ass long term: Cut losses quickly. Cut losses quickly. And Cut losses quickly. Please do not misunderstand that last point! Unsuccessful traders, in some cases, can become paralyzed if a trade goes against them. Rather than taking quick action to cap a loss, they may hold on to a losing position in the hope that the trade will eventually work out…more often than not the trade won't work out and will compound your losses. In some cases the trade will come back to you but that is not the norm! A losing trade can tie up trading capital for a long time and may result in mounting losses and severe depletion of capital…So, let me end this portion of the blog off by saying this, again, 

 Cut losses quickly. Cut losses quickly. And Cut losses quickly.

The Importance of Accepting Losses

Far too often traders fail to accept the simple fact that they are human and prone to making mistakes, just as the greatest traders of All-Time do. Whether you put a position on in haste or one of your long-time big earners has suddenly taken a turn for the worse, the best thing you can do is accept it…just take the loss on the chin like a champ and move on. It is very important to learn how to compartmentalize your trades. Your past trade is in the books, your future trades are non existent and the trade that you’re in right now is the most important trade that deserves all your attention. The worst thing you can do is let your pride take priority.

Not accepting losses is a very common mistake, and those who commit it do so by comparing their current trades to past trades that might have been parabolic winners. 

Learn to compartmentalize every trade. Get in your trading Zen mode!

The Dumbest Thing To Do Is Buying Unfounded Tips

Everyone probably makes this mistake at one point or another in their trading career. You may hear your relatives or friends, or a trading community for that matter, talking about a stock that they heard will get bought out, have killer earnings or soon release a groundbreaking new product. Even if these things are true, they do not necessarily mean that the stock is "the next big thing". In all too many cases great news can equate to stocks plummeting in value as early investors look to realize gains.Other unfounded tips come from investment professionals on television and social media who often tout a specific stock as though it's a must-buy, but really is nothing more than the flavor of the day…OR they’re pushing their own agenda. Remember, there are multiple ways to “pump and dump” a stock…and your favorite TV investor personality is no different! These stock tips often don't pan out and go straight down after you buy them. Remember, buying on media tips is often founded on nothing more than a speculative gamble.

Next time you're tempted to buy based on a hot tip, don't do so until you've got all the facts and are comfortable with the company. Realistically, as a trader, you’re looking to trade short term volatility anyways. 

So, learn to scan the markets for the most volatile stocks on any given day and apply your trading edge according to your Trading Plan! Do Your Homework

New traders are often guilty of not doing their homework or not conducting adequate research, or due diligence, before initiating a trade.People that want to learn how to trade need to take the time to learn how the game works. Which means learning how to locate viable trading opportunities and applying a high probability strategy to the stocks and markets they’re trading. Doing homework is critical! Beginning traders do not have the knowledge that experienced traders have…Experience is something that comes with time. You can’t truly call yourself a trader until you have graduated from the school of hard knocks! . For a new trader, the urgency to make a trade often overwhelms the need for undertaking how to trade correctly. After mentoring countless traders I have noticed this…people go to the markets alone, against their better judgment, only to come back to me asking for guidance. Don't go to market unless you are adequately armed with the right resources! It is a mistake not to learn a trading strategy that works!

-Julian Lewis

Trader and Trading Performance Coach