Silly trading mistakes that winners make

There were many winners last week.

With everyone feeling ‘high’ I would like to bring everybody back to Earth with this reminder. Specially dedicated to all traders who shorted JPY crosses and stock indices.

 

Traders beware these mistakes

Most pairs including stock indices are near to or have broken below August 24 ‘Black Monday‘ lows.

AUDJPY broke 'Black Monday' August 24 '15 low

AUDJPY broke ‘Black Monday’ August 24 ’15 low but is it a real break?

Examples:

  • AUDJPY
  • FT100
  • HSI

This is the most exciting moment because positions are most profitable. But this moment of breakout is also the most dangerous moment for these reasons:

  1. Trader psychology - A whole week of gain has made us greedy and complacent. We are ready to jump at any trading idea because we are sitting on flushed profits and prices have been moving a lot with very little or not consolidation on very low time frames. We might have considered ourselves swing/day traders but the inner scalper is tearing to come out.
  2. Market psychology - Market psychology can u-turn sharply. A strong bearish market is also an oversold market. Few traders realise that there is very thin level of separation. Oversold can stay oversold for a long time as long as momentum is in charge but oversold/moment can switch places very quickly. At that moment where bulls suddenly step in while early bears take-profit, price reverses. Eventually fuel higher move comes from late bears who are forced to close at loss. Also the beginning of a U-turn looks no different from a normal retracement so by the time one notices, price may be moving very fast – the opposite way (becoming a short squeeze).
  3. Over-positioning – Some traders might have over-stretched by big-position and left with very little margin. Beware of margin calls should there be a spike.
  4. Wrong positioning – There is also danger of position-sizing dangerously.

 

I thought I was Superman.
I thought I was gold.
I set myself a target and made many fold.
Making money wasn’t HARD so I ramped it UP.
Orders 2, 4, 6, 8, 10.
I made a rope to hang.

 

12 preventive steps

  1. Don’t become complacent – inspect your charts regularly.
  2. Take partial profits and move stop loss orders regularly. This is active risk management.
  3. Take note of principles when adding to winning trades – don’t build an inverted pyramid that will topple easily (WTI example).
  4. Refrain from scalping, refrain from trading low time frames.
  5. Don’t play breakouts. Beware of false breaks.
  6. Keep to your rules. You have won money but you are not invincible yet.
  7. Insist on good quality setups before entering new position.
  8. Check equity and available margin regularly, make sure there is plenty of margin available.
  9. If you are affected/distracted at work or unable to sleep at night, your position size may be too big for your personal psychology. Time to reduce some.
  10. Avoid trading long hours even if you are winning. Eventually you will tire and fatigue will cloud your judgment.
  11. Don’t fall in love. Just because you won a lot of money with xx pair this time round doesn’t mean you go all in with it. They are like balls – they can roll/bounce in any direction.
  12. Don’t mind your floating P/L too much. What’s more important is to remember critical success factors that make this trade so exciting.

As a summary, do what you have always done to come to this winning trade. Mastery and consistency is important. Don’t change plans just because you feel on top of the world.

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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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