The dark side of trading…

Every day, all around the world, traders make mistakes. Mistakes are part and parcel of trading and we have to accept that sometimes these are going to happen. However, there are mistakes that traders make that should never happen…

Unfortunately, every day, traders make the worst kind of mistakes that can wipe out their entire account and therefore see them become just another statistic of being a failed ex-trader. Over-gearing and not using protective stop-losses is what causes this. Quite often, over-gearing comes as a result of over-confidence. When a trader has had a good trading period, that’s often the point where they are at their most vulnerable.

You see when a trader has become over-confident, they are more likely to feel that they can now do anything and be successful in the markets. They ignore the old rules about risk management and believe stop losses ‘don’t apply’ to them.

Now we have the recipe for the perfect storm. It’s now only a matter of time before they get into a trade with too much size (relative to their size of account) and either a stop that’s far too wide or no stop whatsoever. Then when the trade goes against them, they initially still have a strong belief (based on their over-confidence) that it will come back for them (it always did previously!). But this time it doesn’t, it just keeps moving against their position. They become paralysed, just like that proverbial deer staring at the car headlights moving towards them. So they take no action, bury their head in the sand and hope….

Eventually, they either get a margin call from their broker which means they are closed out or they do close the position when they are down such a huge amount that they can’t take anymore. Trust me, this happens somewhere around the world every single day. So the next time you feel yourself getting over-confident after having had a great winning spell, take a few days off, congratulate yourself for your good work and allow yourself to calm down. Don’t allow yourself to become a statistic….

Cable is still a currency that has a huge amount of interest among traders presently. The trend remains down but if it closes above1.3950, we could see a bounce that see it wanting to test its prior January lows in the 1.41 area.

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Have a great week

Charlie Burton,

Ezeetrader

Join Charlie in the trading room for two days free

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