“It took me 15 years to learn how not to trade,” said a world-renowned, 44-year trading veteran, in a recent interview. Now, learning how not to trade is hardly the “education” many of us are hoping for, but in trading—and in life, for that matter—learning what not to do is a valuable lesson in itself.
Actually, in talking about traders’ desire to shorten the learning curve, this expert trader went on to emphasize the importance and very real value in finding what doesn’t work, just as we continually search for and refine what does. It’s all education, afterall, and since every trader makes mistakes and learns some hard lessons throughout their journey, that’s a great concept that we can all build upon.
So what have you learned so far about how not to trade, and what happened to teach you? It’s possible that more such lessons still lie ahead, but regardless, instead of talking about what you should do, today we want to cover some ideas for what not to do as a trader!
We trade in an information age where economic news, data, and “education” than ever before are always just a click away. Sounds great, right? Well, not necessarily! You see, you have to filter all of what you see and hear out there, determine the merits for yourself, and never try to take outside strategies and ideas and simply plug them in to realize success of your own. You have to make sure it works for you first!
New traders especially receive a valuable lesson in how not to trade whenever they go out in search of some hot, new indicator, set-up, or trading strategy. Without proper knowledge or testing, they wind up gambling on unproven methods, and that’s precisely how not to trade!
Bad information, however, isn’t the only obstacle facing today’s traders. The sheer volume of what’s out there is a problem in itself, and it’s a proven fact that more information does not produce clearer signals or better results. Instead, it may do the opposite, causing “analysis paralysis,” leading to faulty trade execution, or even more losing and/or missed trades.
Don’t be in the habit of taking everything at face value. Instead, go to great lengths to protect your trading strategy, be skeptical of any new ideas until you thoroughly test them out for yourself, and don’t feel the need to add more information or variables to your strategy if it already works. Simple and repeatable is the mark of a good trading strategy, and more often than not, complexity will only hurt you in an industry where it truly is possible to profit more by doing less.
Most traders aspire to become master chart readers, so competent that the patterns seemingly leap from the charts at them, giving rise to “perfect” trade set-ups that can be taken with ease and confidence. But it’s a long journey to get there, and in the meantime, one of the major pitfalls for less-experienced traders is chart staring instead of chart reading…and that’s a lesson in how not to trade as well.
If you stare at a chart for long enough, you start seeing what you want to see, not what’s really there. That’s when traders either begin to manufacture set-ups, or abandon what they know altogether and start “winging it,” taking chances on trades that are outside their knowledge and comfort zone. There may not be a viable trade there at all, so needless to say, that rarely ends well, and that’s how not to trade.
What is it that you’re really looking for on the charts? If you like to trade instances where price is testing key levels of support and/or resistance, then do it. If you are proficient at trading pivots, pin bar reversals, or momentum breakouts, then do that. But don’t flip wildly from one strategy or idea to another, especially if that’s not what you do and how you feel most comfortable trading.
Instead, commit right now to doing what you know and what your strategy calls for…no more and no less. You’ll trade smarter and more efficiently from this day forward and won’t have to endure as many tough lessons in how not to trade along the way.
Imagine for a moment that it’s many years or even decades from now and you’re looking back on your trading career. How will you want to remember it, and are you currently on track to leave that kind of legacy?
Now, if you’re still trying to find your way as a trader, that’s fine! We never stop learning, afterall. However, as you learn the strategies and ideas that work for you in your trading, don’t erase from your memory bank the ones that don’t.
Along the way, we all learn how not to trade, too, and that can be more valuable than you may think. Ultimately, every lesson and every trade—whether good or bad—helps build knowledge and experience towards the ultimate goal of all: a proven trading strategy that is clearly defined, repeatable, and works for you time and time again.