Hey guys, I believe since most newbie/struggling traders share the same issues, and those issues are pretty common, here is a few things you should avoid doing at all costs. I'm writing this thread because i am a moderator in a newbie trading room (and i have been for a few years) and everyone or almost without exception makes pretty much the same mistakes or adopts the same losing behaviors. You can be less of a amateur and more like a pro if you follow these simple things. TIME & EFFORT It always amazes that traders, who normally wants to become full time traders, and make a nice living out of trading, Are not putting the effort or time it requires. You want this to become a career for you then you need to invest the time and effort. Unless you are some kind of trading prodigy (they exist somewhere out there) you will cry and experience bitter failure and feel like putting a gun at your head because you are a loser, and that is PERFECTLY NORMAL. It is supposed to take time, not only learning a system (whatever it may be), learning trading mechanics, how markets behave, etc. Same thing applies to your account, making your fist 1000$ profit out of your 5k account WILL take time, possibly several weeks. Those guys who makes 100's of K$ per day/week? they started small too, and don't expect to be at their level until SEVERAL YEARS / DECADES of experience. Patience is the #1 virtue here, and the less effort you put in, the more time it will take. If you can consistently make 1$ per day, everyday, you're ahead of 95% of the people on this forum. Start small, be patient. don't expect miracles because they are not going to happen. CHAOS In my opinion, the markets are chaotic(NOT RANDOM, chaos and randomness are different concepts), and your job as a trader is to make order out of this chaos. If the market chaos would translate into the real world, it would be something like this : Imagine this morning you take you car keys and you drop them on the floor, they will fall on to the floor. The next morning, you drop your keys and surprise! they float in mid air. The next morning, you drop them, and they rise in the air instead of falling, and the next morning, you search for you car keys and realize you don't even have a car to begin with this particular morning. The lesson here is this : The markets are unpredictable outside of a few minutes in the future, anyone who claim they can predict anything is bullshitting you. You cannot predict anything, and you got to accept this and move on. The distribution of winners and losers in your equity curve is completely chaotic, you can get your 40% losers all in a row before you get your 60% winners, all in a row too, for the year, so don't be afraid of a little draw down and please don't modify your rules or add new ones because your system takes a beating this week. (See 2 days stats) CONSISTENCY This is something i see ALL THE TIME. Trader joe is in a trading room. Trader joe trades the system basic rules (you know, the simple ones, for newbies) and is doing ok. Trader joe sees all those 10 year+ experienced traders calling setups and taking trades that are not trades he could take using the basic rules. What is trader joe going to say? He will say ''but why, i am missing all those good trades, lets include them in my trading plan or setup or whatever''. Results : Trader joe who was doing ok is now doing badly. Trader joe's confidence is eroding fast, pretty much like his account. Trader joes then thinks ''I'm sure ill be doing better on a faster / slower timeframe and then go on and tries exotic timeframes like 12range, 900volume, etc. Guys, like i mentioned before, why the hell aren't you able to stick to a plan more than 2 days in a row. Why are you always willing to risk money by switching rules all the time. When you will be trading the SAME THING for 12 MONTHS, everyday, with success, maybe then you can consider adding a setup. I know we live in a era of instant everything, instant coffee, instant porn, instant microwave dinner, but that doesn't work in trading. You have to make a choice between being patient and taking your time, or face failure. 2 DAYS STATS. Another common thing i see all the time is something like this Trader joe notices the price bouncing on the 34ema and wow that bounce went for 70 tics!!!! trader joe is like WOW i need to take this setup from now on!!!!!! of course trader joe wont be doing any backtesting on that setup, he saw it today, thats it, even though he saw the prices cut through the 34ema like butter several times in the past, hes not remembering it, because now hes focusing on the 70 tic trade he didn't take and that happened to work this time. This is a trap. Don't be an idiot like Trader joe please. Statistics and backtesting is a lot more complicated that it seems. You need to test your strategies on many many many similar instruments to see if your data converges, then on multiple time frames, etc etc etc. Its a tremendous amount of work and unless you know what you are doing, stay VERY FAR of anything like this. No 2 days stats, no adopting a new setup because it worked today and yesterday. RISK MANAGEMENT AND PROFIT MAXIMIZATION I just want you to realize this. Every ''protection / risk reduction measure'' you implement in your trading will ALL results in a drop in profit. Smaller stops, trailing stops, going break even +1 after X tics in your favor, etc, will ALL drop the profit you will make. You have to make a choice between reducing risk or maximizing profits, but you cannot have both. So make a choice, and stick with it. for more than 5 minutes. all those risk reducing maneuvers you can do might increase the psychological comfort you have and that will help you pull the trigger when its time. it will make you less scared and make it easier to stick to the discipline, but you WILL make LESS money, that is for sure. Thats the premium you pay for extra comfort. eventually if its too comfortable you wont be making money at all. Just be aware of that. TRADE A SYSTEM YOU LIKE, BUT DON'T MARRY IT A 'Trading system'' is nothing more than an excuse to trade correctly. its not going to be the thing that will change your whole trading career for the better. If you suck with your current system, you will suck with the next one you will learn, and this will keep happening until you figure out which behaviors you adopted that make you lose money. so what is it, inability to stick to a plan for more than 2 days? you're scared shitless and you don't pull the trigger? and after you missed a valid trade and see it go your way you just chase it and get in the market in the hopes it continues to go your way? DON'T BE A LOSER, ACT LIKE A PRO Just think about where you could be financially in 5-10 years if you accept making only 100$ a day, everyday (average), with a 5k account. and add to size for every 5k you have in there you will be making 100's of K$ a year in 5 years. For some reason people don't see this and wants everything, now, and then they wonder why they fail. Don't pretend you are special or more intelligent than the rest, you are not. YOU ARE UNIQUE, JUST LIKE EVERYONE ELSE. start small and be patient. trying to go faster than the boat you will drown yourself in the sea of failure, just like the millions of impatient traders before you, KEEP IT SIMPLE STUPID. Watching too many indicators or charts will worsen your results, because you are clogging your mind with too much information. Don't get me wrong here, i totally encourage everyone to look for and accumulate the maximum amount of knowledge on whats out there, how other traders proceed, what others setups / char patterns / $TICK $ADD $TRIN or whatever popular indicator / market internal that is out there. But because you know it exist IS NOT A REASON TO ADD IT TO YOUR CHARTS. Eventually, indicators on your charts will start contradicting each others and each setup you are looking at will get permission from a group of indicators while the rests are screaming ''NOOOOOOO''. If a trade decision requires you to look at more than 4-5 indicators, you have too much on your screen, remove everything from your charts and just keep what you need for your basic trading plan, Remember? the one you used to make money with before you started messing around with your plan and all those other indicators because you felt you were missing out on something?
Although I agree that there's a trade-off between risk control and profit potential in the short-term, the fact is that in the long-term, if you don't have risk control then you are going to go bust (if you use leverage) or have a massive drawdown if you use no debt. Unintentionally taking too much risk is far more damaging than unintentionally taking too little risk. If you risk too little, you reduce your profits. If you risk too much, you lose your entire account. Big difference. Therefore up to a point, risk control actually improves profits. You can see this in things like the Kelly rule. If drawdown risk is too high, your long-term profits are actually lower despite taking more risk and trading bigger size. Beyond a certain risk point, your long-term profits will not only be lower, they will be -100%. You only have to look at the Niederhoffers and Brain Hunters of this world to see that. In trading, only the paranoid survive. For these reasons, I think it's bad advice to suggest that new & struggling traders take a more relaxed attitude to risk control. That is something you should only do on an expert level after many years in the markets. In the first 5 years, the #1 priority to drill into someone's head should be survival under all market conditions and all trader mental states (actually this is a good idea anyway, even for veterans). It is far better for a beginner to be paranoid about losses & blowups, exiting trades too fast etc, than it is for him to be the opposite. The former trader will over time be able to widen stops, give trades more breathing room etc once he has the experience to handle this. The latter trader will be bust long before this happens. Once you factor in additional risks such as market crashes, psychological meltdowns, burnout, changing market environments (making your old methods no longer profitable), going on tilt after a big loss etc, then the arguments in favour of strong, even paranoid, risk control become even more compelling. So I have to disagree with you here. All new traders should have the fear of god put into them when it comes to losses. If you are a new trader, and you are scared shitless of losing money before you ever place a trade, than you are in a better position than 99% of people who stepped into the market as novices.
"the markets are chaotic (NOT RANDOM, chaos and randomness are different concepts)" OK. But there is better terminology. The way to view markets is in terms of "efficiency". (1) Most liquid markets are highly efficient... And, FOR PRACTICAL PURPOSES, will be random for a small-time retail trader. (2) Less liquid markets are less efficient... And become even more inefficient during times of crisis... more chaotic. Chaotic = temporarily less efficient All pro trading firms and many hedge funds... Exploit market inefficiencies. By definition, there is NO other way to profit in the long run.