Four Common Trading Problems

The nature of trading, on one hand, offers us virtually unlimited freedom of expression, meaning, we pretty much make our own rules. Except for margins and account minimums, we virtually have no one looking over our shoulder, telling us what to do. On the other hand, that same freedom can be dangerous. It opens up the potential for us to do serious damage to ourselves. While the freedome is nice, we need rules and boundaries guiding our behavior to be effective in the trading environment. We must create a foundation of focused mental discipline so we always act in our own best interest. This structure must be inside us-our mindset-which is tricky because for most of us, society combined with our upbringing has shaped us differently. This is why so many people who are successful in other endevors fail miserably at trading. To be successful as a trader they (we) must realign our mind set to accommodate the nature of the market. Let's discuss four problems that can be sabataging to our success as traders because of all this freedom with no boundaries.

1. Unwillingness to create rules:

This is difficult for most people, especially those who are attracted to the freedom trading provides. However, trading without a regime that is organized and consistent, containing sound money management guidelines is death to trading accounts.

2. Failure to take responsibility:

Trading gives us freedom to make choices (when to get in a trade, when to get out, how much to risk, etc.) with an immediate outcome. We want this freedom, but too many don't want to accept the responsibility for the outcome of our choices. If you want consistent, positive results, you have to believe and totally accept that no matter what the outcome, you and you alone, are totally responsible. Not your broker, not the market, not other traders.

3, Addiction to random rewards:

Another mistake many traders make is making random or poorly planned trades. That is if they plan at all. The markets behavior is not random. The same behavior patterns appear over and over again. Individually they seem random but a series of patterns prove to be consistent. This is a paradox remedied with a disciplined, organized, consistent regime. When inexperienced, undisciplined people trade, sometimes they experience a winning trade, sometimes not. It's these occasional wins that they become addicted to. They are addicted to the euphoria of making money on a trade, even if they've experienced several losses. The problem is that this type of trading is not consistent and more times than not, leaves the trader losing money.

4. External vs. Internal control:

Most of us were raised in such a way that taught us to depend on others to fulfill our needs, wants, and desires. Along the way, we've adopted socially based, controlling and manipulating ways to get others to behave in a manner that is in line with what we want. The problem with this when it comes to trading is the markets are not a social environment. In the markets, it is literally every man or woman for him or herself. It is impossible to control or manipulate what the market does and cannot depend on it to do anything for us. Since we have learned techniques to manipulate our social environment to respond to what we want, it can be very difficult when we embark in trading since we cannot control the market. So what's the solution, we must alter our mindset. We cannot control the market but we can control ourselves, our own behavior. We can control our perception and interpretation of market information, thus creating a new mental environment within ourselves that ensures we always trade in a way that is beneficial to us.

In my next post, I will talk more about accepting the responsibility, shaping your mental environment, and reacting to loss.