5 Bad Habits for Traders to Let Go of in 2015
Recently I posted about how you can replace your bad trading habits with good ones. In that article, I went over a brief list of common bad habits that traders may want to replace. Now I want to go into a little more depth about some of those bad habits and how they may be harming you as a trader. If you can get rid of any of these bad habits this year (even just one of them!), you will find that your trading performance significantly improves.
There are a number of bad habits that fall under the category of overtrading. One of them is trading when market conditions are poor instead of waiting. Another is trading when you feel like you are not taking enough trades—and not because you see a really great setup. Why is overtrading so bad for your account? It exposes you to unnecessary risk and will ultimately take a toll on your win/loss ratio. It may also coax you into believing you are being productive when you are actually doing the opposite. The third big danger is that you may start forgetting how to trade! When you get into bad habits, you forget your good ones. You may no longer recognize a good trade from a bad one, or predictable market conditions from unpredictable ones. At that point, you have become pretty helpless.
2. Getting addicted to the charts.
Staring at your computer screen day in and day out may seem like a good idea, because it means you are working hard, right? Not necessarily. You may simply be wasting valuable time and energy. Your goal is to work smart and not just hard. When you watch the charts all day, you are not working efficiently. You are pulling time away from research, testing, and other activities. That includes activities which are not directly related to trading. You may be giving up sleep time or time to relax and refresh yourself and have fun with your hobbies. Maybe you are even giving up on time with friends and family. Chart addiction will only cost you over time, so it may be time for some time off. Come up with a strict schedule and break the bad habit. You will get more done in relation to your trading and activities outside of it! Odds are you will also start feeling better adjusted psychologically.
3. Bad exit strategies (or no exit strategy).
Do you use the early close feature to exit trades routinely that you know you should stay in? Do you regularly avoid using that same feature when you know you ought to get out of a trade? These are both examples of bad exit strategies—or the lack of a strategy. Early close is a very powerful tool that can literally make all the difference in the world if you use it correctly. But if you are paranoid and regularly use it to get out of trades that would have gone on to win, cutting down your payouts to partial profits, you will eat into your bottom line, and may eventually end up being unprofitable. And if you stick stubbornly with bad trades when you know you should get out, you may turn a lot of break-even situations or partial losses into total losses.
How do you develop a good exit strategy? You should come up with rules for exiting early during testing, and then apply those same rules to your live trading, even when you feel uncomfortable about it. One great rule which applies well to just about any system or situation is this: If the reason for the trade no longer exists, the trade no longer exists, so get out of it. If however the justification for the trade is still present, you should stay in the trade. You derive the justification directly from the rules that govern your trading method. That means that you can bring your discretion into play here, but you do not have to. You can make the decision based entirely on the mechanics of the trade if you wish.
4. Jumping into the fast lane when you should stay right where you are.
There is a tendency for impatient, frustrated traders to hop on over to the 60 Second options when they feel like they are not making money quickly enough. This bad habit is not exclusive to binary options traders either. If you have ever traded Forex, you might recognize a similar behavior where you simply drop down from a higher timeframe to a lower one and hope for the best. Going from a longer expiry time to a shorter one is pretty much the binary options equivalent.
You should only trade 60 Second trades because you have tested them and achieved great results, and you know what you are doing. Trade them because you are good at them, and not because you are impatient. You will not make money faster just by trading more quickly. You will simply lose money more quickly. Actually, there are two reasons this habit will cost you. The first is the obvious: you will lose just as many trades as before, and they will blaze by like lightning. The second is less obvious, and that is that you will probably lose more trades, because you are not used to trading 60 Second options. The markets behave differently at that level, and the experience psychologically is also completely distinct from what you are used to. You will rack up losses so quickly that you may find you have blown your whole account before you even have the time to think about what you are doing.
5. Needing to always be right.
Sometimes habits are more sneaky and harder to identify than the ones above. It may not be a specific action you are taking, but a specific attitude you are trading with. One common bad psychological habit is the need to always be right. It is unrealistic, and it will set you on a destructive path very quickly because it is impossible to achieve. You will make foolish mistakes in your attempt to achieve perfection, because you will refuse to acknowledge your mistakes. Ironically, this will lead to you being wrong more and more often. The need to always be right can easily feed into bad habits like those above. It may cause you to stubbornly cling to a bad trade or go on tilt after you lose that trade.
Imagine if you let go of just one of these bad habits this year. Think about how much money each bad habit you have is costing you. When you let go of these behavioral patterns, you are literally having a direct and immediate impact on your profitability. And some bad habits are connected, so when you get rid of one, another may follow right off of that. Letting go of the need to always be right for example can help you let go of the tendency to go on tilt. Let this year be the year you revolutionize your trading, one habit at a time!