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"There are only two ways to lose money in trading, while there are multiple ways to win. The two ways to lose money are bad analysis, or bad implementation of good analysis."
Bill Williams
By now, you're likely familiar with the major recurring themes that hold back many traders from success. A key reason why trading is so hard is that you emotionally will by default work to defend your ego before trying to grow your account.
The last bad habit, that will be covered is being so short sighted in your trading that you're willingness to put on a trade or not put on a trade is dependent on your last few trades.
Recently Covered Bad Habits:
-The Need to be Right
-Overleveraging your Account
-Unwillingness to Allow your Edge to Play Out
You'll notice these are emotional habits as opposed to bad analysis. You'll notice at the beginning of the article a great quote from Bill Williams, who has a trading strategy based on the science of fractal Chaos. The idea behind his insightful quotes is that a new trader or struggling trader would do better to focusing on how not to lose money as opposed to making money.
Analysis can be fixed and is rather easy to do so. However, implementation of analysis takes a whole new skill set that this series aims to help you with.
Emotionally Guided by the Last Few Trades
Once a trader begins to get her or his analysis up to par, many traders will spend years with a flat equity curve before they begin to enter into the upper echelon ranks of high performing and / or high-returns.
Why, you may ask? Simply put, many traders are guided by their last few trades. Here's what that means and how it plays out to the detriment of many FX traders.
Let's say you have an account with an average balance of $10,000. With this account, you'll employ a conservative amount of leverage to the tune of 10x.
Therefore, you commonly trade at $10 per pip or a 100k lot on EURUSD where you risk 50 pips per trade. If you have 3 trades that all go negative, your account has dropped from $10,000 down to $8,500.
The next trade set-up doesn't look as appealing as the first three even if the technical triggers were the exact same. Therefore, some traders decide to pass up on the opportunity feeling that the market, "just isn't ready to trend". Only then, it seems, does the market actually take off in a way that either would have covered a large portion of the losses of the last 3 trades or brought your account net positive. Therefore, passing up on the trade prevented your trading system from working and limited your capital.
On the other hand, what would happen if you placed three winning trades in a row for a profit of 75 pips each. Now a $10,000 account is worth $12,250 and you feel invincible. If you're emotionally guided by your last few trades, then you'll probably take that feeling of invincibility and open up a trade worth $25 per pip or 250k so that, you reason, you'll start to make some real money.
While the last 3 trades were a cake-walk, this new trade more leverage than the original traders now puts you near 25x leverage. An emotionally guided trader thinks ego of a steadily growing account equity curve. Therefore, an overleveraged trade that begins to move against her or him may not exit the trade for fear of closing an overleveraged trade and booking such a loss. However, this trade could soon get out of hand and act as a snowball which bleeds your account equity.
This is another example of how a trader who is guided by their last few trades will at best have a flat equity curve and at worst, blow their account up. If you find yourself unable to attain this mindset, an automated approach may be best.
Naturally, the best methodology for long-term success is a mechanical approach otakingf every edge knowing full well that tomorrow's price action is uncertain and you would do well to treat every edge as unique and independent of every other edge.
Happy Trading!
Bill Williams
By now, you're likely familiar with the major recurring themes that hold back many traders from success. A key reason why trading is so hard is that you emotionally will by default work to defend your ego before trying to grow your account.
The last bad habit, that will be covered is being so short sighted in your trading that you're willingness to put on a trade or not put on a trade is dependent on your last few trades.
Recently Covered Bad Habits:
-The Need to be Right
-Overleveraging your Account
-Unwillingness to Allow your Edge to Play Out
You'll notice these are emotional habits as opposed to bad analysis. You'll notice at the beginning of the article a great quote from Bill Williams, who has a trading strategy based on the science of fractal Chaos. The idea behind his insightful quotes is that a new trader or struggling trader would do better to focusing on how not to lose money as opposed to making money.
Analysis can be fixed and is rather easy to do so. However, implementation of analysis takes a whole new skill set that this series aims to help you with.
Emotionally Guided by the Last Few Trades
Once a trader begins to get her or his analysis up to par, many traders will spend years with a flat equity curve before they begin to enter into the upper echelon ranks of high performing and / or high-returns.
Why, you may ask? Simply put, many traders are guided by their last few trades. Here's what that means and how it plays out to the detriment of many FX traders.
Let's say you have an account with an average balance of $10,000. With this account, you'll employ a conservative amount of leverage to the tune of 10x.
Therefore, you commonly trade at $10 per pip or a 100k lot on EURUSD where you risk 50 pips per trade. If you have 3 trades that all go negative, your account has dropped from $10,000 down to $8,500.
The next trade set-up doesn't look as appealing as the first three even if the technical triggers were the exact same. Therefore, some traders decide to pass up on the opportunity feeling that the market, "just isn't ready to trend". Only then, it seems, does the market actually take off in a way that either would have covered a large portion of the losses of the last 3 trades or brought your account net positive. Therefore, passing up on the trade prevented your trading system from working and limited your capital.
On the other hand, what would happen if you placed three winning trades in a row for a profit of 75 pips each. Now a $10,000 account is worth $12,250 and you feel invincible. If you're emotionally guided by your last few trades, then you'll probably take that feeling of invincibility and open up a trade worth $25 per pip or 250k so that, you reason, you'll start to make some real money.
While the last 3 trades were a cake-walk, this new trade more leverage than the original traders now puts you near 25x leverage. An emotionally guided trader thinks ego of a steadily growing account equity curve. Therefore, an overleveraged trade that begins to move against her or him may not exit the trade for fear of closing an overleveraged trade and booking such a loss. However, this trade could soon get out of hand and act as a snowball which bleeds your account equity.
This is another example of how a trader who is guided by their last few trades will at best have a flat equity curve and at worst, blow their account up. If you find yourself unable to attain this mindset, an automated approach may be best.
Naturally, the best methodology for long-term success is a mechanical approach otakingf every edge knowing full well that tomorrow's price action is uncertain and you would do well to treat every edge as unique and independent of every other edge.
Happy Trading!
