To err is human, to forgive divine. That statement should sound familiar to most people. We will make mistakes; there is no doubt about that. The most experienced trader will make mistakes. Some mistakes are unfortunately a lot more costly than others. These "sins" as I call them should be avoided at all costs. You will not want to risk your account because you made a deadly mistake.
The first "sin" is the lack of proper money management rules. There is no greater mistake a trader can do to his or her account. There is no cure for the trader that does have proper money management rules in place. This mistake costs close to 95% of new traders to have their accounts wiped out within 6 months of trading. Further more this mistake is so costly and painful, because implementing money management rules is one of the simplest thing a trader can do at the onset of any trade! Money management is a science, there is no need for the trader to use guess work, or intuition, or base their trade on a "gut feel". Proper money management rules provide for all that. If you decide to trade for a living, having correct money management will be the deciding factor between making a lot of money or starving!
The second "sin" is the lack of an organized and well crafted trading plan. You will be surprised how often traders base their trading decisions on the emotion rather than the rational. To prevent that from happening it is important that you are equipped with a rock solid trading plan. There will be times that you will lose in your trading. That is acceptable because you have planned that in with your money management rules. You are still at a profitable point. Your trading plan gives to you an edge. We can define an edge as a higher probability of success. The percentage of success can go up to 75% at times, but usually it is in the range of 60% to 70%. That means out of every 100 trades you should be looking at 60 or 70 trades that don't lose you any money. Note I said don't lose you any money, I did not say make you pips. There is a large difference, for making a trade a no loss trade and having a wining trade are completely separate. There will be times when you will only be able to break even. Still it is better than losing money, so when that happens to me, I am thankful and move on to my next trade expecting that it will be a wining trade.
The third "sin" is lack of discipline. There is little cure for the trader who is lacking in discipline. No trader can expect to be profitable without discipline. The reason being that, if we as traders do not trade our plan and practice money management with the greatest diligence we will ultimately fail.
There is no easy way around it; there can be no compromise when it comes to trading discipline. What then constitutes as trading discipline? Discipline in trading means that you will trade your plan and stick to your money management rules in all circumstances. When times are bad and you have a losing streak the desire to seek out a new trading plan is very great. I know as I have often been in that position. When things are going well and you are wining trades in series, the temptation to increase your position size and do away with money management is also very great. That's your greed speaking to you, and if you obey that tiny voice, you will surely lose your account.
The rules of trading are simple, have a good trading plan, make sure your money management is water tight and stick by you rules like glue (discipline).
Dr. Joshua Geralds is a successful Investment Specialist with over twenty years experience increasing the income of people world wide. Visit http://www.pipsalot.com to learn how to make steady profits through money management for free! |
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