Trading is based on the principle of a well-oiled and fine-tuned system that has been in operation for a long time. There is a close link between trading success and daily habits, just as it is in our everyday life, where continuous routines gradually become habits, which in turn have a huge impact on the final results. No doubt, bad trading habits will interfere with your psychology and will impair your trading, break up progress, and lead to losses and dissatisfaction.
Every time you trade, you should take into account the good ones instead of the bad ones. This will result in successful trading and an increase in overall performance. The productivity killer is bad habits. To be a long-term successful trader in forex you need to develop productive habits and avoid unproductive ones.
In this post, let’s delve deeper into the top 8 detrimental trading habits you must overcome to elevate your trading to an elite level or if you’re new to learning how to trade forex.
1. Comfort Zones
Fear of the unknown usually prevents traders from going off the beaten track and hence they trade only the stocks and industries that they are familiar with. This situation could lead to an investor holding on to a losing stock for too long and missing out on better opportunities. On the contrary, if the necessary investigations are done leaving the comfort zone can be advantageous. The main conclusion is that the fear of the unknown should be overcome by the traders to exploit new opportunities and boost their profits.
2. Overconfidence
Overconfidence may cause investors to make poor trade decisions, even if the strategy is sound. Traders can be too confident after a single big payout, which may drive them to make increasingly risky trades and expose them to a greater chance of loss. The prime conclusion is that traders should be aware of overconfidence and refrain from impulsive trading decisions after a single win.
3. The Failure to Plan Trades
The lack of a robust trading plan would be just like navigating stormy waters without a compass. A complete trading plan should consist of entry and exit points, risk tolerance levels, and well-defined strategies. It is such a plan that will give you a systematic approach to trading and will help you avoid impulsive decisions.
Not planning your trade sets you up for frustration and leaves you in a weak position. This persuades you to trade more than you should, trade instruments that you have not planned for and eventually your confidence and your trading account will be diminished.
4. Not Ending the Losses in Time
One of the deadliest sins in trading is the hesitance to cut losses fast enough. This is mostly a result of the fear of having to admit that the decision was bad or the hope that the market will reverse when you are in a bad trade. Nevertheless, holding on to declined positions may not only worsen the losses, but it will also negatively affect the portfolio performance. It is essential to determine the predetermined exit points and to stick to them consistently.
Not closing your losing positions in time is usually the case when you do not trust and adhere to your trading plan. Once you have got the hard-nosed blueprints, trust the system you have created and use it. Don’t be scared to decide to terminate a money-losing trade. Success in trading is a journey and there is no one, including yourself, who can judge you for losing a trade.
5. Inconsistent Journaling
A sporadic or inconsistent trading journal defeats its purpose: to make you responsible. One of the most useful tools in journal keeping is the power to self-assess by analyzing past trades and making plans for future strategy improvement. Detailed record-keeping makes it possible for traders to find the patterns, strong points and weak points.
When you journal only when you feel like it, the result is that there is no recognition of trades that went bad, or that hit the stop loss. As a result, it is a biased trading journal.
The discipline of documenting every trade should be your utmost priority. You must document every deal. That’s how you know if your trading is on the right track or not.
6. Confirmation Bias
In line with this, traders also experience another problem which is confirmation bias, this is when they tend to stick to information that confirms their already existing beliefs. This one is slightly different from anchoring which is more systematic, because confirmation bias is based on a more individual level. For example, if you see an asset bubble developing in a certain market, you search for information in this direction.
If 9 out of 10 sources present the other side of the coin while you decide to believe the 10th source, this is an instance of confirmation bias. To overcome this prejudice, it is necessary to accept the information that stands out and assess it separately.
7. Revenge Trading
Revenge trading, fueled by anger and frustration, hardly ever belongs to a rational trading plan. It is very important to separate emotions from trading and instead make decisions based on a careful analysis rather than emotions.
When you are down in the dumps, you focus on the next trade as the one that will bring you the money you have lost all along. You live by the motto of “making that win happen”. This gives you the impression that you are behind the market and that you no longer follow your plan.
The trading plan is a key component of your trading journey. It is the document that could be the tool to control your habit. If you can adhere to your trading plan, the chances of revenge trading are greatly reduced. You can stick to the script, get out of the position once it contravenes the set rules, and journal the trades.
8. Not Implementing a Reward System for Bias Strengthening
Failing to take into account the concept of entrenching bias through reinforcing actions may be a missed opportunity. Acknowledgement and commendation of good trading decisions will reinforce positive biases and result in an improved trading approach. Prepare your trading checklist if you need to do so before you begin your trading day. Small things can bring about the biggest changes.
Every time you are developing good trading habits, you have to treat yourself for it. It doesn’t have to be a big deal, even a small treat can also strengthen a positive bias. For example, having a snack after keeping a consistent journal for a week is a good plan to follow.
Consider the desirable outcomes you can apply to support and reinforce the positive bias in your trading path and get into action right away.
