Since I have previously explained some of the things that consistently profitable traders DO, I thought I would now examine the most common mistakes that I see traders make day in, day out.
Most of us make these same mistakes in our trading. DO NOT take comfort from this because you are aware others do it and it is therefore natural. Be worried. The fact that others, including professional traders, make these mistakes time and time again, means they are hard to overcome.
WORK AT BEATING THEM.
These are some of the things that traders that are unable to make money consistently are doing:
Trading without a plan
If you want to be consistently profitable you should have a detailed plan that covers everything from finding the setup, to entering, exiting and managing your risk. I've talked to a lot of traders who tell me: "I buy or sell the level", or "when the news comes out, I hit it". If you think this is a plan, you don't have one. Simple.
Lack of self-control
Having a plan is one thing. Having the self-control to follow it is another. I've seen good traders with detailed, written plans lose their discipline when they are in a trade. Today I sat with someone that got in a trade with a 10 tick target. This was part of their plan. Either the stop or the target gets hit. However, after entering the trade, the market fell and came within one tick of their stop before moving up. As it came back to breakeven, they moved their target right down to just a few ticks in profit considering that "something was wrong" and attempting to exit early. Then, as the market rose, they moved it back up out of the way to the initial 10 ticks up. The market faltered and headed lower and once again the target came down. In other words, the trader "chased" the price with the target. Eventually, this indecision and inability to follow the plan led to a small loss right before the market had a significant rally upwards. This is just one way that lack of self control leads to losses. There are many others. Emotional self-control is the hardest part of trading to conquer but unless you do, your chances of success are limited.
Trading your P&L
We've all done it and it's detrimental to your success. The only time your P&L should come into play is when you are determining your risk and ensuring it meets your rules for risk management. If you exit a winning trade simply because you are in profit you are making a mistake. Likewise if you trade because you are down on the day and you want to make money back. This is revenge trading. Consistently profitable traders DO NOT do it.
Trading with tight stops
I see traders trying to make money with 2 point stops in the FTSE. They place these tight stops simply because they want to reduce their risk. One girl I know trades with a 2 point stop in the FTSE and I hear her frequently say: "Right after I was stopped out the market went my way..." Remember: the market doesn't care about 1, 2 or 4 tick stops - the AMOUNT means nothing. What it DOES care about is previous bar highs, bar lows, support, resistance, trend lines etc. Place your stop where you are wrong on the trade idea not simply where you lose an "acceptably small" amount of money.
Taking profit too quickly
I am convinced this is the hardest thing to do in trading. I sat with a trader a few days ago that was down for the day trading the FTSE. The market had moved considerably lower throughout the day and she had been on the short side of the market 9 out of 12 times and yet was losing money. This is because every trade that went 1 or 2 ticks into profit she was already looking for a reason to get out. Some don't exit at market, they simply use the security of a trailing stop and smother the trade by getting right up close so that the first time the market retraces a few ticks they are gone. Give a trade a chance to work. Likewise, if it is moving in your favour, give it a chance to pause and catch its breath. Holding is extremely difficult but it is the KEY to successful trading whether you are a scalper or a position trader. One good win can pay for all your losses. I see this happen to good traders all the time.
Not giving something a chance to work
If you are going to try a system give it a chance to work. If you try something new and it fails to make money after three days and you quit and start looking for the next new thing, you are not giving it a proper chance. If you follow a system, a strategy or are trying out a timeframe, make a statistically significant number of trades and analyse them. Make sure you are trading the setups correctly. This is far more likely to ensure your success than simply switching to something else.