1. Little Preparation or Training
When you enter the market arena, you had better be prepared. However, few traders perform the necessary due diligence before moving headlong into the markets, says Robert Deel, CEO and trading strategist for Tradingschool.com. “If you are going to swim with the sharks, you better learn from the sharks,” Deel suggests. “The market is a food chain — the big fish eat the little fish.”
Deel says few books teach you everything you need to know about trading stocks, so he recommends stacking the odds in your favor by reading as many as possible. “You shouldn’t underestimate the time, dedication, and commitment it takes to be a successful trader. You can’t just walk into the market with a handful of money and expect to take money away from the professionals. If that’s the case, you’re gambling, not trading.”
Dr. Elder agrees that many people underestimate what it takes to be a profitable trader. Not having the benefit of a business school education or on-the-job training with a financial firm, Elder says it took him a long time to become a successful trader. “I had to overcome a huge disadvantage — a formal education,” he quips. Elder says that while a background in financial services would have been helpful for him, sometimes highly educated traders can tend to get too caught up in technical analysis. “The market doesn’t always work that way,” he says. “Markets have a high degree of volatility. How you function in an atmosphere of uncertainty can be much more valuable than the type of analysis you use.”
2. Being Too Emotional About Money
According to professionals, the reason many emerging traders fail to consistently earn profits is because of their perceptions of money. Trading expert Deel says that he gives all of his students a psychological test when they come to class. On the test, students are required to describe — in one word — what money means to them. Nine times out of 10, the answers are “safety,” “security” or “power,” he says. “Too many traders get so emotionally involved in their trades, long or short,” Deel points out. “If a trade goes against them, many feel they are losing safety. That’s why they tend to react so emotionally.”
Deel says that no one can properly prepare a trader for the emotional roller coaster of the stock market. “Many are afraid of being branded a loser,” he says. “To keep from being wrong, many people often will let a stock go negative against them. Let’s say they put a stop at 30. As it drops to 29, then 28, they sometimes decide to go against their original trading plan. To keep from selling at a loss, they suddenly decide to hold for the long term. That’s often a painful error.”
Dr. Elder agrees: “If you came into my trading room and sat across from me, you wouldn’t know if I was making $10,000 that day or losing $10,000. I don’t show that much emotion. I’m more concerned about the longterm outcomes of my trading. It’s more appropriate to look at your account at the end of the month or year, as opposed to your daily results.”
Fortunately, there are ways to desensitize one’s emotional connection to money. Elder and Deel both suggest that by trading smaller share sizes, such as 100 shares per trade, emerging traders can teach themselves to be less emotionally charged. Trading in smaller quantities can help minimize both the losses and the emotional distress that often comes with losing larger amounts of capital. Over time, as a trader becomes more successful, experts suggest slowly raising the share size — without raising your blood pressure — until a personal comfort zone is reached.
3. Lack of Recordkeeping
It’s understandable why traders become emotional when trading stocks. Elder says: “When you make a trade, everything is going up or down. It can feel like you have no control over what is happening. By the very nature of buying and selling, total strangers are giving you money or taking away money, and that can be very stressful.”
To help bring these emotions under your control, Elder recommends you keep a trading diary. “Every time you enter a trade, print out the chart and write down why you entered the trade, whether it was fundamental, technical, or a tip,” Elder says. “I write the entry on the left side and my exit on the right side.” He says the diary helps you achieve two goals. “The first is to make money. The second is to become a better trader. You might not succeed on the first goal, but you must absolutely succeed on the second goal. You should try to become a better trader after each trade.”
Elder believes keeping good records is essential. “Show me a trader with good records and I will show you a good trader. Even if you’re losing money little by little, you’re learning from your mistakes. I believe money management and recordkeeping are even more important than technical analysis — and I’m a guy who wrote two books on technical analysis.”
4. Anticipating Profits
Most traders don’t want to acknowledge that a trade could turn against them. They enter the market assuming they’ll be successful, refusing to look in the rearview mirror. It’s also common for emerging traders to use a calculator to predict how much they’ll make and how they’ll spend the unrealized profits!
Deel thinks that it’s dangerous to anticipate how much you’ll make in advance. “Let the market tell you what you are going to make. Anytime you say ‘I have to…’ you’re in for potential trouble. Remember: The market doesn’t care about you.”
He suggests that entering the market with a neutral attitude is a good approach. “My mantra: What is, is. If you’re in an uptrend, go long. If you’re in a downtrend, go short. If you’re overbought, wait for a reversal and go short. If you are oversold, wait for a reversal and go long.”
5. Blindly Following Mechanical Systems
A large percentage of traders use technology — in the form of online trading platforms that provide charting, research, and backtesting tools — to help them refine their strategies. A computer and software can provide important information about the technical and fundamental characteristics about stocks. However, many traders make the common mistake of relying too much on these tools without a full understanding of their capabilities.
“People think that the computer is a replacement for what is between the ears,” Deel says. “They think the box is going to give them the answer. A lot of people gravitate toward mechanical trading systems that are supposed to take over the trading for them.” He contends that if you don’t know how these trading signals are generated, then you are using software to think for you. “When you give up thinking and analyzing,” he says, “you are toast. If you are blindly following mechanical systems to buy and sell, it’s likely that you’re unsure of exactly what you’re doing.”
next stock.”
When you enter the market arena, you had better be prepared. However, few traders perform the necessary due diligence before moving headlong into the markets, says Robert Deel, CEO and trading strategist for Tradingschool.com. “If you are going to swim with the sharks, you better learn from the sharks,” Deel suggests. “The market is a food chain — the big fish eat the little fish.”
Deel says few books teach you everything you need to know about trading stocks, so he recommends stacking the odds in your favor by reading as many as possible. “You shouldn’t underestimate the time, dedication, and commitment it takes to be a successful trader. You can’t just walk into the market with a handful of money and expect to take money away from the professionals. If that’s the case, you’re gambling, not trading.”
Dr. Elder agrees that many people underestimate what it takes to be a profitable trader. Not having the benefit of a business school education or on-the-job training with a financial firm, Elder says it took him a long time to become a successful trader. “I had to overcome a huge disadvantage — a formal education,” he quips. Elder says that while a background in financial services would have been helpful for him, sometimes highly educated traders can tend to get too caught up in technical analysis. “The market doesn’t always work that way,” he says. “Markets have a high degree of volatility. How you function in an atmosphere of uncertainty can be much more valuable than the type of analysis you use.”
2. Being Too Emotional About Money
According to professionals, the reason many emerging traders fail to consistently earn profits is because of their perceptions of money. Trading expert Deel says that he gives all of his students a psychological test when they come to class. On the test, students are required to describe — in one word — what money means to them. Nine times out of 10, the answers are “safety,” “security” or “power,” he says. “Too many traders get so emotionally involved in their trades, long or short,” Deel points out. “If a trade goes against them, many feel they are losing safety. That’s why they tend to react so emotionally.”
Deel says that no one can properly prepare a trader for the emotional roller coaster of the stock market. “Many are afraid of being branded a loser,” he says. “To keep from being wrong, many people often will let a stock go negative against them. Let’s say they put a stop at 30. As it drops to 29, then 28, they sometimes decide to go against their original trading plan. To keep from selling at a loss, they suddenly decide to hold for the long term. That’s often a painful error.”
Dr. Elder agrees: “If you came into my trading room and sat across from me, you wouldn’t know if I was making $10,000 that day or losing $10,000. I don’t show that much emotion. I’m more concerned about the longterm outcomes of my trading. It’s more appropriate to look at your account at the end of the month or year, as opposed to your daily results.”
Fortunately, there are ways to desensitize one’s emotional connection to money. Elder and Deel both suggest that by trading smaller share sizes, such as 100 shares per trade, emerging traders can teach themselves to be less emotionally charged. Trading in smaller quantities can help minimize both the losses and the emotional distress that often comes with losing larger amounts of capital. Over time, as a trader becomes more successful, experts suggest slowly raising the share size — without raising your blood pressure — until a personal comfort zone is reached.
3. Lack of Recordkeeping
It’s understandable why traders become emotional when trading stocks. Elder says: “When you make a trade, everything is going up or down. It can feel like you have no control over what is happening. By the very nature of buying and selling, total strangers are giving you money or taking away money, and that can be very stressful.”
To help bring these emotions under your control, Elder recommends you keep a trading diary. “Every time you enter a trade, print out the chart and write down why you entered the trade, whether it was fundamental, technical, or a tip,” Elder says. “I write the entry on the left side and my exit on the right side.” He says the diary helps you achieve two goals. “The first is to make money. The second is to become a better trader. You might not succeed on the first goal, but you must absolutely succeed on the second goal. You should try to become a better trader after each trade.”
Elder believes keeping good records is essential. “Show me a trader with good records and I will show you a good trader. Even if you’re losing money little by little, you’re learning from your mistakes. I believe money management and recordkeeping are even more important than technical analysis — and I’m a guy who wrote two books on technical analysis.”
4. Anticipating Profits
Most traders don’t want to acknowledge that a trade could turn against them. They enter the market assuming they’ll be successful, refusing to look in the rearview mirror. It’s also common for emerging traders to use a calculator to predict how much they’ll make and how they’ll spend the unrealized profits!
Deel thinks that it’s dangerous to anticipate how much you’ll make in advance. “Let the market tell you what you are going to make. Anytime you say ‘I have to…’ you’re in for potential trouble. Remember: The market doesn’t care about you.”
He suggests that entering the market with a neutral attitude is a good approach. “My mantra: What is, is. If you’re in an uptrend, go long. If you’re in a downtrend, go short. If you’re overbought, wait for a reversal and go short. If you are oversold, wait for a reversal and go long.”
5. Blindly Following Mechanical Systems
A large percentage of traders use technology — in the form of online trading platforms that provide charting, research, and backtesting tools — to help them refine their strategies. A computer and software can provide important information about the technical and fundamental characteristics about stocks. However, many traders make the common mistake of relying too much on these tools without a full understanding of their capabilities.
“People think that the computer is a replacement for what is between the ears,” Deel says. “They think the box is going to give them the answer. A lot of people gravitate toward mechanical trading systems that are supposed to take over the trading for them.” He contends that if you don’t know how these trading signals are generated, then you are using software to think for you. “When you give up thinking and analyzing,” he says, “you are toast. If you are blindly following mechanical systems to buy and sell, it’s likely that you’re unsure of exactly what you’re doing.”
next stock.”
