3 Real & Honest Threats to Your Trading Profits

Rather recently, we discussed how to cure some of your more common trading fears, and in doing so, we hopefully uncovered why these particular fears—including the fear of being "wrong," or the fear of missing out—really aren't so fearsome afterall. What are the threats to your trading profits?

Now make no mistake… trading is not an endeavour for the timid, but here's a dose of honesty that some other traders (and especially pros) may be reticent to admit:

There are a few distinct threats to your trading profits that are quite scary or unsettling… and we all encounter them at some point, too.

Indeed, these are the outcomes, events, and possibilities that more experienced traders really dread…and they're probably not the fears that keep you awake at night. So while we don't aim to invalidate any of your particular trading fears, you might begin to consider whether these three (3), well-known threats to your trading profits are what you should actually be afraid of when you trade?

Whipsaws & False Breakouts

There's probably nothing more infuriating in all of trading than the dreaded "whipsaw." In fact, whipsaws have to be the #1 cause of smashed keyboards and the like among traders. For those who don't know, a whipsaw is whenever a currency pair moves against you, barely tripping your stop loss before shooting quickly and decisively in the desired direction without you on board.

Now it's probably little comfort to hear that whipsaws happen to the best of us. What's even worse, though, is that there's really nothing you can do to prevent them, because even if your strategy calls for leaving a little extra space for positions to work out—and The Lazy Trader methodology does—sometimes despite your best work, things just don't go your way. And when that happens, all you can do is shake it off as best you can, and remember that you're not alone!

See related: Trading Hang-ups That Bug the Pros, Too

False breakouts, on the other hand, occur when price action does begin by moving in your desired direction, but without the required momentum to sustain the move, the market quickly reverses and turns the trade against you. False breakouts are also commonly referred to as "failed breaks," and as you might expect, are particularly worrisome for breakout traders.

But the reason both of these scenarios are such significant threats to your trading profits isn't because they can ruin the quality trade set-up at hand. Instead, it's because once you have to bear the pain of a whipsaw and/or false breakout, it can be harder for you to execute subsequent trades with clarity and confidence. These are fearsome scenarios, afterall, and they can stick with you. So learn to respect their seriousness, and of course, check out our false breakout trading strategy to turn more of these potential trades back in your favour.

"Quicksand," or "Trading on Tilt"

Personally, I don't think there's any feeling worse than when you become so frazzled and upset when trading that you literally can't think straight anymore. It's a sinking feeling of having lost control while, at the same time, the markets have somehow sped up before you. It's overwhelming; so much so that practically nothing good can come of it. I tend to refer to the feeling as "quicksand," or "trading on tilt."

New or inexperienced traders may feel it in the aftermath of one or more losing trades, in periods of unusual price action, or perhaps amidst extreme, intraday market volatility. And if ever it happens to you, rather than trying to "push through" and go about your business, please recognise that you're facing one of the most serious threats to your trading profits there is, and the best decision you can make in that moment may well be not to trade at all.

See also: Why You Never Really "Need" to Trade

Honestly speaking, lifestyle trading on higher time frames like the daily and weekly is good for avoiding "quicksand" and smoothing out choppy markets, but it doesn't mean that traders on any time frame can't become overwhelmed. Regardless, I might advise any new traders who are struggling with the pressure and fast pace of intraday trading to consider higher time frames instead. And by all means, no trader should put hard-earned capital at risk in the markets while "on tilt," for inevitably, their decision making will be compromised and trading performance adversely affected.

Improper Trade Timing

Many traders naturally assume that the root cause of losing trades is an incorrect or flawed trade idea. However, it's more common than you might think to be "right" about the trade, but "wrong" about the trade timing, and this happens to be one of the finer points that separate winning trades from losing ones. Thus, improper trade timing is the last of our primary threats to your trading profits.

Fact: Technical analysis traders fixate a great deal—and perhaps too much—on pattern recognition. However, even if a high-quality entry is taken too early or too late, profitability can be affected or even erased entirely. That's why really mastering a pattern or set-up requires more than seeing it on the charts. A trader must also know when to enter (and exit) in order to tighten up risk and maximize reward.

For Lazy Traders, proper trade timing requires waiting for a qualifying trade signal—like a pin bar reversal, for example—to occur once price approaches a key support or resistance level. So rather than "jumping the gun" and anticipating a given trade set-up occurring before price reaches the critical juncture, hold off until the actual entry signal flashes, and then use the high and low of the candle to place a tighter entry and stop.