Costly Trading Mistake #2 (And How To IMMEDIATELY Fix It)
Becoming A Trading Junkie
The objective of a Trading Junkie is not to make money, but to make trades.
Too many traders become a "trading junkie" and over trade which is always a costly activity. A "trading junkie" overtrades because he feels he must make trades every day instead of waiting for the high probability set-ups. A "trading junkie" does not trade with a specific, written trading plan, but continually takes low-probability trades just for the sake of trading.
When I talk to someone on the phone or at a trading conference who is interested in Dynamic Traders Group products or services and they ask, how many trades does your "system" make each day (or week or month)? I know they are probably a trading junkie because what is most important to them is the frequency of trades.
When I speak with other traders and they brag about how many trades they make each day, I know they are probably a trading junkie who is not most interested in maximizing the return for capital, time and expense in their trading business.
Only Make The High-Probability Trades With Minimum Risk
The principle for any trade strategy is to identify trade setups with a high probability outcome and minimal capital exposure. Trading junkies make marginal trades, those without a high probability outcome. Consistently successful traders have identified conditions with a high probability outcome and minimal risk for every market they trade, and only take trades that meet those conditions.
You know you're a trading junkie when:
· You are nervous if you are not in the market.
· You trade for ticks and not for points.
· You are impressed with the number of trades you make regardless of the net profit.
· You have messages sent to your cell phone or pager from your broker or trade software when you are not in front of a computer. Especially while you are on vacation!
· You are afraid to take time off from trading because you might miss a good trade.
· You have not identified setup conditions with a high probability outcome.
Trade For Profit, Not For Activity
No one wants to think of themselves as any kind of Junkie, but you are probably a trading junkie if you are concerned with anything related to your trading other than maximizing the return from your capital and time. Trading Junkies are always in denial just like any other kind of junkie. They have their excuses like - "I only day trade because I don't want to hold a position overnight." Which really means - "I am trading out of fear because I don't have a trading plan, or enough capital for overnight trades, or I don't really understand the market." Another one is - "If I'm not in the market, I can't make any money." What this means - "I don't have a clue how to identify trend conditions so I'll always be in the market so I know I'll catch the next trend."
All trading junkies have an excuse. In the past twenty years, I think I've heard them all.
If you want to be a consistently successful trader, your only objective is to trade to maximize your return for the capital and time invested. If you trade for any other reason, you are not in the business of trading.
Trade For Profit, Not For Activity
You are reading this and thinking, "This article doesn't apply to me. I'm not a Trading Junkie." That may be the case, but I'll bet at least 50% of the people reading this are. You probably need an intervention, but that isn't going to happen! If you are not a consistently successful trader, more than likely you over trade. Most all traders will improve their bottom line if they trade less.
This isn't theory, this is advice from someone who has traded for over 20 years. And yes, I am a recovering Trading Junkie!
How To IMMEDIATELY Fix Being A Trading Junkie
The easiest way to immediately solve a trading addiction is to trade a higher time frame, regardless of what time frame you are now trading. What ever type of trade strategy you use, apply it to a higher time frame for at least some of your trades. The junkie day-trader who usually trades for a few ticks on 3 and 5 minute charts, should apply the same strategy to 15 and 60 minute or 60m and daily charts to identify trades that will last at least from hours to days. The junkie swing-trader who usually scans several thousand stocks should apply their trade strategy to a handful of picks with daily and weekly data to identify the potential for trades that may last for several weeks instead of several days.
Make the decision to maximize the gain from the capital and time invested in your business of trading. Move up to a higher time frame for at least part of your trades. Or, take a set time period like one month, and only trade the higher time frame. It will be the first step to overcoming your trading addition and becoming a consistently successful trader. You should quickly learn how to identify the high probability setups and enjoy the success of having a trade and sticking with it when a major move is made.
Learn A Comprehensive Trade Plan
In our Dynamic Trading Multi-Media E-Learning Workshop and other educational material, we teach you how to develop a trade plan to identify trade setups with a high probability outcome and low risk. In other words, how to trade to maximize results from your trading activity rather than to maximize the activity itself!
Treat trading as a business and you WILL dramatically improve your results.
