Trading sins, some classic trading errors

Sailing against the wind – many traders have the reflex to sell short in markets which are moving up strongly (or to buy in a falling market). This is based on sentiment: ‘the market has gone up so much, it must surely come down’. Timing the market is impossible. It is better to go with the trend. Even if the market would go down after a strong upwards move, it will not come down a lot. The potential gain versus the risk is not interesting.

Turning lead into gold – many traders tend to concentrate all their efforts on that elusive trading strategy that will turn lead into gold. All their trades will be winning trades. This strategy does not exist. Good strategies will always have a significant portion of losing trades. This is an important point to keep in mind. Once you have crossed this mental bridge you will spend much more time for example thinking about how to perfect your management of open positions.

I want it all and I want it now – trading is a marathon. Profits are built slowly over time, trade by trade (including a big portion of losing trades). Even those much-admired traders in the City get their bonuses for profits generated over at least one year.

The aspiring private trader, however, wants big profits and he wants them next week. He will use the maximum leverage available and will lose his money. Don’t be tempted. If you are like most people and a year is a long time, and you don’t have the patience, set yourself very short term objectives.

For example, £ x profit per week. Working towards short-term small objectives works much better for most human beings.

We’ll see how it goes – this is the lazy man’s approach to trading. These types of traders start trading without learning the basic rules and without having a trading strategy to guide them. A simple trading strategy which covers the basics is crucial. It is like the traffic code. Driving in traffic is very dangerous; you risk your live. You’re not stressed, however, because you know the rules. Green light drive, red light stop, etc. A good set of trading rules are crucial to good results. And, as importantly, they reduce your stress.

Around the concept of a simple strategy to guide you during your trading the broker WH SelfInvest (with offices in Belgium, Holland, France, Luxemburg and Germany) has developed such a thing for their clients. The aim of this teaching tool is to illustrate that everybody can learn how to trade futures without significant losses. This does not mean you are guaranteed to make money but it does teach you the principles of going into the market prudently and with rules to guide you. A free two-week demo is available via this link.