Oh the wonderful world of trading, filled with eye popping profits and neck wringing losses. As a trader and trading coach, I’ve had the opportunity to work with traders from all over the world and experience some significant profits and losses first hand. Now you’re probably not a trader until you’ve had a few good losses under your belt, but many of these losses can be kept to a minimum or avoided altogether.
 
Please don’t get mad at me if you wish you had read this a long time ago!

• Never, NEVER cancel a stop loss. I know, I know, every time you have a stop loss in the market, the market moves just enough to stop you out, right? Well it might mean that you should evaluate where you place your stops (this is where good trading journals come in handy), but once you’ve done your analysis and placed the trade, you need to be committed to the trade and your plan. The only adjusting you should do is to lock in your profits.
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• Always have your broker or your trading desk number handy, even if you trade electronically. This is really important for the day trader who is trading leveraged markets. It is easy to get a little too comfortable when your trading platform and internet connection are running smoothly, but once you drop your guard that inevitable lost connection will happen…a lost minute, even seconds could be an expensive lesson!
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• Always check your open orders. This can be done a few different ways depending on your trading platform, but if your intention is to be flat in the market, always double check! There’s nothing worse than a GTC stock or option order that gets filled months down the road, or a stop order on a futures contract that gets triggered accidentally on you as a day trader.
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• Don’t rely on Dollar Cost Averaging to “repair” a bad trade. It does NOT work. Trust me! I know you’ve heard stories about making money by adding to a losing position, but let me share one word…ENRON.
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• The market will always go higher and it will always go lower. Don’t try to pick tops and bottoms on a hunch. This is where most new traders get burned.
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• Understand the impact your order can have on illiquid markets.  When I began trading options, there were a few times when I tried to take a position where I WAS the market and the spread and my fills killed any opportunity I might have had on the position. I had a futures student who tried to take a day trading position in Platinum and it cost him $3,000 just seconds after he got his fill (of course this was before he joined our coaching program). Trading derivatives requires an understanding of liquidity, and the role volume and open interest plays on the markets you trade. If you do not fully understand these concepts, simply stick to the most popular markets and you’ll be fine.
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• Don’t over-leverage yourself or have all of your money tied into one position. Keeping cash on hand is okay as a trader. These days brokers are offering extremely competitive margin requirements for day trading futures, but low margins can be a wolf in sheep’s clothing.
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• Don’t trade to trade. Understand that there are 3 positions you can take as a trader: a long position, a short position and a position to NOT be in a position. There will be plenty of trading opportunities that will come along. Don’t give money to the markets simply because you are bored!
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• Avoid trading a strategy without having a good understanding of how the strategy works. What is the typical winning percentage? What is the largest drawdown? In general, high winning percentage strategies have smaller average profits per trade. Lower winning percentage strategies might not have as many winners, but when you are a winner, you typically win big. If you expect your strategy to bring big profits without losses, you can also expect a check made out to “REALITY” to come your way any day.
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• Don’t get cocky after a few wins. The market WILL humble you and make fools out of those with egos.

Do you have any to add to the list?

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