Bad trading habits and how do you break them


As a trader, success requires creating a solid trading strategy and sticking to it over time, which involves the development of a robust trading strategy and, more crucially, sticking to it. One of the most harmful habits a trader can have is ignoring their own trading strategy and rules for when to enter and exit a trade. To break this bad habit, you must assess your standpoint on the success or failure of each trade individually.

Failure in managing trading risk

TPerhaps the issue is that you're constantly holding on to bad trades. It might be because you have no idea when a trade becomes "bad," whether or not it reverses. It's important to remember that a "bad trade" isn't automatically a losing trade. That is the outcome of a trade. A bad deal is one that you didn't prepare for or have complete control over from start to finish.

  • When a terrible trade turns into a profit, it's referred to as "luck."
  • A bad trade that has resulted in a loss is simply a bad trade that has happened.
  • A profitable trade is one that is well-executed.
  • A solid trade that ends up losing money is one that is statistically anticipated to decline.

In the trading business, profits and losses are unavoidable. Both should be expected, but only when using a statistically favorable model (real or hypothetical). No logical trader would ever utilize a strategy or methodology that has already been proven to fail. Despite this, many traders continue to adopt methods that regularly burn up their funds. If your trading strategy is consistently losing, it suggests one of three things: you didn't thoroughly evaluate the strategy beforehand, you don't know how to analyze a given approach (which is critical), or your strategy lacks a good risk management plan. Make sure you analyze any trading strategy or system before you start using it. Determine whether the data sample is large enough to provide a comprehensive picture of the company's performance over time. If you don't know how to analyze a system, spend a lot of time learning (there are plenty of methods to do it). When you place a trade, you need to know not only the system's odds, but also your entry and exit points, the size of your position, and the impact the trade will have on your whole capital if you lose.

Not Distinguishing Win Rate from Size of Payoff

According to a trader, he makes money on his trades 80% of the time. For each successful trade, he earns an average of $100. He does, however, lose an average of $400 on each trade he loses, which is not unusual. He makes no market profits in the end, but he does make a little loss because of trading commissions, fees, and other expenses, as well as a significant amount of lost time. Another trader has a dismal 20 percent winning rate. As a result, he loses money 80% of the time–an average of $100 in his case. He generates an average profit of $500 when he has a winning trade. In the end, he comes out on top. You're probably wondering how the first trader can be so unprofitable when he wins so frequently, and how the other trader can win when he only has profitable trades. Your win rate and the size of your (positive and negative) payment aren't the only factors that impact profitability. Combining the two is required. And this is something that a lot of newbies or "bad" traders aren't aware of. There's a simple expectation-driven formula that can help you analyze performance or assess a method's potentiality.

(Win% * average win) – (Lose% * average loss) = Expectation

If the expectation is greater than zero, it may be profitable; if it is less than zero, it may be unprofitable. A zero value is defined as a break-even point. You've probably been trading blindly if you've been trading without understanding the above strategy. To see how well you do, try it out on your own trades.

Revenge Trading After Taking a Loss

If you've ever read Sun Tzu's The Art of War, you'll be aware of the basic concept of not entering battle too soon. You can't always force a win, but you can always be ready to seize the moment when it comes around, as he so brilliantly puts it (and we quote). Revenge trading is an emotional attempt to force a win, usually following a defeat. It's counterproductive, anti-strategic, luck-seeking, and silly, and it's all too frequent among sloppy traders. There isn't a single system on the market that employs revenge trading as a strategy. You're either trading without a plan or trading against it if you find yourself retaliation trading. What are your options for resolving this? Stick to your plan. Take advantage of all possibilities that present themselves to you. It's time to move on if it doesn't. Controlling your emotions is the solution. If you can't do it, you should either stop trading or switch to another trading strategy that suits you better, such as day trading, swing trading, position trading, investing, experimenting with a different asset class, or hiring a professional to manage your portfolio.

Not Sticking to Your Trading Plan

Why change your trading strategy if you've reviewed it extensively and established that you have complete confidence in its outcome? If you've left your system for no other reason than to "tweak" its processes for improvement–that is, you've thoroughly examined the consequences of your modifications beforehand–you're just being undisciplined. This unhealthy habit originates from personal desire and distraction. However, in many cases, it demonstrates a lack of trust in the system. And it's up to you to figure out if your lack of confidence is legitimate. What is the best way to go through this? The only option is to build greater discipline if you depart from your strategy because you aren't totally confident that it can work, even after thoroughly evaluating it. If you break from your strategy because you lack sufficient funds to trade, you should stop and return when you do. Stop trading and evaluate your approach if you deviate from it because you haven't properly analyzed it (and don't do it again).

Getting Emotional and Impatient

As the old saying goes, "good trading is boring." You'll know exactly what I'm talking about if you've been through it. You've already figured out a winning plan. You saw that make money at times and lose money at the others. At the completion of a series of trades, you've earned more capital than you've spent or lost. It's as simple as that. You have a mentality problem if you have a technique that works this well yet you're still emotionally distressed. Maybe the market or the system isn't a suitable match for your personality. If you can't adapt to the trading environment, try switching markets or strategies. Now, if you're always worried and your strategy isn't working, you might have a good cause to be stressed, that something isn't working for whatever reason. Back to the beginning. Assess your strategy. By being "meta," you can assess your evaluation, or even your ability to make an evaluation. Identify your errors, make corrections, and go back to your original plan. Do you have enough money to trade? If you don't have enough money, rethink your method or market. Trading might not be for you if you have every reason not to be emotional about your trades, if you have every reason to be confident about your deals, yet you're nevertheless bothered by anxiety or greed. What would you do if this happened to you? Trading anxiety is a red flag that something isn't quite right with your approach, method, or even you (your level of capital, risk tolerance, experience, or mindset). Either the technique doesn't fit your trading preferences or risk tolerance, or you're not sure if your system is ready to trade (which in many cases it might not be). You'll have to find this for yourself. This can be dealt with in a variety of ways. There is only one sign that trading isn't for you: if you can't keep your cool, no matter how good your plan or how much expertise you have, trading isn't for you.

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