Learn to Trade

Faulty Thought Patterns Common Among Losing Traders

By Rob on February 26, 2016

Reading Time: 4 minutes

“What were you thinking?” It’s the first thing losing traders tend to say to themselves when they have just done something foolish. Unfortunately for them, losing traders are left to ask themselves that same question far more often than they would like.

Now, it’s not that losing traders are foolish people. Trading mistakes and losing trades happen to all of us all the time, and they always tend to start with just a failed idea or belief. What follows are some of those ideas, and the faulty thought patterns that are all too common among losing traders.

Make it your mission to identify these thoughts whenever they occur, and take the steps mentioned to overcome them—you’ll trade better and more profitably as a result.

Key Takeaways

What are the common actions of a losing trader

How discipline and emotion control will make you successful!

How can I trade less and have more free time

Losing traders “have a feeling about this one”

As the old saying goes, “Hope is not a trading strategy,” so while losing traders often “Have a feeling” that the market trends will reverse at any given point, unless there’s a valid trade set-up and entry signal, there’s no worthy trade to be had, either. Always rely on technical analysis and pure price action, not hunches or your hope that a market will behave a certain way. And if ever you realize you “have a feeling” about something, stop yourself and ask “What technical evidence exists to support that feeling?” Quickly redirect your focus back to the charts and base trade decisions solely on your trading strategy in order to overcome fear in trading.

Losing traders will take a set-up that’s “good enough”

Anyone who’s ever taken a trade that ticks most, but not all, of the required boxes knows that it is tempting whenever a set-up has a few things going for it. That is often when losing traders say “It’s good enough” and execute. Unfortunately it is what that set-up lacks which is a problem. This can be a clearly defined risk adjusted return, or a prevailing trend working in its favour. Also possible is a key support/resistance level coming into play. Without any of these the trade is likely to be unsuccessful.

See also: 2 Hidden Variables That Can Ruin Good Trade Setups

Now mind you, no perfect trade set-up, but being selective is a cornerstone of any risk-minded trading strategy. Losing traders, often driven by their strong desire to participate, tend to overtrade by taking non-qualifying set-ups. Here’s how to combat that problem:

Stop yourself from making any ill-advised trades by writing out your trading parameters and posting them right on your desk or beside your trading screens where you can see them at all times. Hold yourself accountable, and if ever you break those rules, have a punishment system in place to enforce compliance going forward.

Do not try to “make something happen”

Every new trading day brings much hope and anticipation because you never know what can happen! The fact is, though, most trading days are not very fast-paced and exciting. Losing traders, eager to “make something happen,” tend to throw trades up there out of boredom. This is due to the misconception that successful traders are always in the markets. Actually, much of the time is spent waiting and analysing set-ups, not executing and monitoring multiple open positions. Most always, forced trades lose money, and they could have been avoided by:

Following the rules
Walking away when no trade opportunities were present.

Here is our preferred solution, though:

By trading part-time and only at the open or close of the market, disciplined traders can eliminate boredom, and get more out of trading while spending less time and resources in the markets.

Losing traders think they must “make up for the last one”

A short memory is often a close ally, whether it’s in sport, in business, or when trading the markets. Losing traders, however, tend to let the outcome of their last trade—especially if it’s bad—impact their next one as well. Even if not revenge trading, feeling angry, or believing that the market now “owes them one,” they will structure and manage the next trade so as to recover the amount of their previous loss. This is rather than using the stop loss and target parameters set forth by their strategy. Trading psychology is an important part of trading and investing.

Conclusion

Trading with only money and end results in mind is dangerous and is how disastrous losing trades occur. It is the stuff that ruins entire trading careers. If you are ever especially upset or rattled by a prior outcome, take time to calm down. Make sure you take your next trade only in accordance with your strategy. Even Warren Buffet gets it wrong, when he went against his own rules not to invest in airlines.