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10 things winning traders will not say

Jul 12 2017
Jonathan Smith

This article will focus on some of the most popular misconceptions about forex trading. We will present them in the form of phrases a winning trader will never say. Most of them deal with overconfidence in one’s own abilities. While a lack of any confidence can be just as devastating, trading the markets from with an arrogant mindset is probably the worst thing you can do. You may find a few of the points controversial, as certain types of traders (some of which are very successful) may occasionally say such things. Feel free to discuss them in the comments section below. Here is the list:

1. “I never place stop-loss orders”

This comes as a result of knowing what stop-hunting is. This is the phenomena of markets making a sharp move (or “spike”) and then retracing back to the previous levels. Some times this occurs naturally. In other cases it is the result of a “fat finger” – someone at a big institution making a missclick and moving the price. Other times dishonest brokers can make these “spikes”, just to trigger lots of their clients’ stop-loss orders.

The latter version is the reason why some traders do not place stops. We would strongly advise you to not be one of them. Even if you are scared of being shaken-out of the market, still place a much wider “emergency” stop-loss order. Trading with “mental stops” works for some experienced traders, but it may easily be one of the worst decision for most.

2. “I don’t need a trading plan”

In order to continue trading in the long-term, you must take care of many factors. A trading strategy (the way you enter and exit the market), a risk management scheme, the proper mindset and adequate capital are the most important. They must all come together in a consistent plan. No successful trader places his first order without knowing these in advance.

You should spend at least an hour each weekend, when the markets are closed, to review the previous week and look at the key events for the upcoming one. This review process may seem tedious at first but is necessary in order to monitor your progress. Creating the habit of doing something you don’t want to do is a key element in building your trading discipline. 

3. “I’ll risk half my account on this trade, because I am that certain”

This works together with the previous point. No matter how good a set-up looks, taking a bigger trade than your usual one is not recommended. This may sound counterintuitive, but making this mistake once and loosing is better than coming out with a winning trade. If you get a massive winner, you will remember it for a while. This may lead you to systematically ignore risk management rules in the future and return your “big profit” to the market, multiple times over.

5. “I will take a loan to set-up a trading account”

All forex broker websites have a risk warning in the bottom section. It usually includes something in stating the fact you “should only risk capital, you can afford to lose”. If you can’t afford a serious investment, in order to trade the markets, you should save-up for it. Alternatively, you can open a cent-account, with one of the brokers offering them, like FXTM.

Trading with borrowed money will affect you psychologically. Although you may be easily able to repay the loan, you will start questioning whether or not you should have proceeded in this manner. You will start comparing your interest rate with your trading profits, to see if you can “beat the bank”. On the other hand, if you start losing, you will start to feel miserable, which can lead to a downward spiral of negative thoughts.

4. “My strategy predicts market moves accurately 95% of the time”

No matter how good one’s predictive capabilities are, financial markets can often behave irrationally. The theory of technical analysis is based on the presumption, future price dynamics will mimic the previous ones. Claiming this sort of successful prediction rate is indicative of one of two things:

a) this is an extremely short term strategy, closing trades way too early (which may be similar to dangerous Expert Advisors)

b) the person is lying.

A trading system can be profitable even if it gets less than 50% of the trades right, with proper risk management. On the other hand, bragging you often predict the markets correctly is only a sign of arrogance.

6. “I use a very complicated system”

There are many methods of forecasting financial markets. Technical analysis is the most popular one, with many different variations involved. This can lead to an inability to create a trading strategy, as there are too many options to choose from. After educating yourself about the different tools and how they work, feel free to experiment with them, but don't overdo it.

It is easy to lose yourself and end up with charts looking like this (click to zoom-in). There is basically no point of having such a modern art painting – there are support and resistance levels everywhere.


7. “Trading the markets is easy”

This is a classic sign of overconfidence, typical for relatively new traders who have had several months of winning. Finding the proper balance is hard, but it may be better to stay humble, miss-out on some opportunities due to fear, than to be way too eager to trade. Remind yourself that overconfidence can be a slow and insidious killer.

To make it clear, there is a big difference between “easy” and “simple”. As illustrated by the previous point, trading should not be overly complicated. Saying it’s easy to make money has a very different connotation than saying you trade with a simple methodology.

8. “I don’t care about the fundamentals”

This is one of the more controversial points. Some traders are technical purists, who only look at the charts or only trade with automated systems. In our opinion they can also benefit from following the economic calendar. A degree in economics is not necessary in order to have a basic understanding of monetary policy, employment and what drives market moves. Whether or not this knowledge should be included in making actual trading decisions is another topic. We believe one should, at least, know when the next FOMC meeting is coming up, in order to expect a market move.

9. “This market can’t move any higher/lower”

Again, this comes to ones perception of the markets and the dangers of overconfidence. Trading against the predominant market trend can offer great set-ups, in terms of risk to reward ratios. That being said, the market can always reach out to new highs/lows and a trader should be fully aware of that possibility. No matter what the ATR, RSI or Stochastic tell you, the market can do anything. The key to successful trading is figuring out what it is most likely to do and proceeding accordingly.


10. “I don’t read books about trading”

Winning traders are constantly willing to learn new things. They may not change their trading style overnight, after reading a book, but they will enjoy seeing other perspectives. Nowadays, alternative educational sources, such as websites, videos and so on are more popular than books, but there are a few classics you should definitely check out. The fist which come to mind are the “Market Wizards” series by Jack Schwager (interviews with some of the world’s best traders) and “Trading in the zone” by Mark Douglas, which focuses on the mental aspect of trading.

TAGS: 10 things  winning traders  10  will not say  trading mistakes   
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