Life is full of habits.... Most things I do on a daily basis are because of the habits I have formed - good and bad. Following our daily habits is instinctive - they become part of daily life.
Trading habits are no different.
Trading Habits - The Good, The Bad, and The Ugly
You have likely developed some good trading habits and some bad trading habits. The bad likely outweighs the good... Perhaps you have also developed some real ugly habits!
Whether your trading habits are good, bad, ugly or non-existent, this post is for you...
I do not profess to obtain all the positive habits listed and none of the negative. Even after trading Forex for over a decade, I still have bad trading habits! I guess successful trading continues to be a journey, even after all these years...
The Good - a list of good habits every trader should develop
Always setting a stop-loss
So, let's start with the obvious... Always use a stop-loss when trading, even if it's a mental one.
Traders that are in the habit of setting a stop with each trade are doing two things... One. They should have calculated their risk for the trade, meaning they know how much they are going to lose, if the stop-loss is triggered. Having a set risk for every trade you take is paramount for healthy risk management.
Two. They are preventing themselves from letting a potential loss run. You have likely heard the trading phrase 'keep your losses small and make your winners big' or something similar. Well, always setting a stop-loss is a sure way to keep those losses small.
Taking regular breaks
The wisest traders take frequent breaks throughout the day. They also take vacations from trading.
Having regular breaks really helps me to be less emotional when trading and less attached to trades. It refreshes my perspective and makes me a better trader. It is easy to drown in your emotions or thoughts when constantly sitting in front of a screen. A quick break can quickly turn things around.
This is the same when taking vacations... I take two months off trading each year (August and December). I always return fired-up and ready to start trading with new ideas and a renewed commitment. Even though I love trading, sometimes I need a break from it just to realise how much I love it.
Sticking to entry and exit rules
This whole post could be summarised by saying 'have a detailed trading strategy and stick to it', as a detailed strategy should cover everything from analysis, taking breaks, the best times to trade, amount to risk per trade, stop-loss placement, etc, etc. For the moment, let's just focus on entry and exit rules of a strategy, though...
A fantastic trading habit is to always enter and exit trades as per your strategy criteria. Once this is achieved, further strategy habits can be developed, such as always risking the same amount per trade, always creating a watch-list, having regular breaks, etc, etc. Good habits are often built one habit at a time. Sticking to your entry and exit rules is a great foundational trading habit to build from.
You can learn my trading strategies in my Advanced Price Action Trading Course.
Spending time learning
The most knowledgeable traders spend regular time learning, even after they are profitable.
All traders should be spending time each week learning and developing their trading knowledge. This is the same for anyone working in their chosen industry - never stop learning.
I love trading books. I also enjoy the occasional trading video. Both help me to consider new trading ideas, update me on industry changes and help to keep me motivated.
You can find a list of my favourite trading books here.
Trading the same time each day
I have always been surprised by how few traders have this habit.
Perhaps I take working from home and trading full-time for granted - it's easy for me to start and end trading each day the same as trading is what I do for a living.
If you are working or studying full-time, then these commitments can get in the way of having a regular trading habit. Do your best, though, as trading is a game of consistency, even down to the time you start and end trading each day!
Always risking the same
Something else that requires consistency.
The best traders don't just know their risk per trade, they also have the same or similar risk on every trade.
Risking 0.1%-1.0% per trade is industry standard. Decide your risk and stick to it no matter what.
Socialising with other traders
Man... I wish I had developed this a long time ago. I really regret not joining an online trading community and having trading friends, as it would have really benefitted me.
Having traders to socialise with helps with two things...
One. It beats the loneliness that a lot of traders face. Independent trading usually involves trading by yourself, every single day. Day in, day out.
Two. Gaining ideas and insights from friends is a great resource. Something that I do not currently have but wish to develop. I wonder how different my trading could be today, what mistakes I could have avoided, and what trading opportunities I have missed, simply because I was not talking to other traders.
Interacting with other traders has some real benefits.
I recently started a Forex sub-reddit. Feel free to follow and join in the discussions.
The Bad - a list of bad trading habits to avoid
The trading habits listed below for both bad and ugly trading habits all have a common thread - they are all woven on negative trading emotions and undisciplined trading psychology.
To change and avoid any of the bad habits below, you need to be emotionally disciplined and be constantly striving to master your trading emotions. To help you do this, please read my Ultimate Guide to Beating Trading Emotions.
Not letting winners run
This is a big one.
As mentioned earlier in this post, there is a popular saying in trading, which goes something like, 'keep losses small and make winners big'. Traders can get themselves into a very bad habit of making losses big and winners small! Sometimes they keep losses small and winners even smaller!
To prevent you from closing positions early, I suggest checking open positions less frequently and perhaps risking less per trade. Both of these things will help reduce your emotional attachment to each trade.
Risking too much per trade!
Too many traders risk too much per trade. They do this in two ways.
One. They don't set a stop-loss and let their losing positions run.
Two. They do set a stop-loss but risk 5%+ per trade.
You should aim to risk anywhere from 0.1%-1.0% per trade and always have a stop-loss.
Over-trading
There are two types of over-trading...
The first is opening too many positions and trying to trade too much.
The second is spending too much time in front of the charts and not having regular breaks.
I suggest following a detailed trading strategy, which includes entry and exit information. Follow the strategy with exactness. When you make an error, correct it quickly and get back on track. This should prevent you from taking too many trades.
I also suggest taking frequent breaks throughout the day and having regular time-off i.e. spend time away from your desk.
Trading due to boredom
Trading can feel slow at times. Sometimes the markets barely move. Other times they do, but your trading strategies signal no trading opportunities.
Sometimes, traders taken 'boredom trades'. They are looking for some action, so they force themselves into it. This often leads to losing trades and frustration.
It markets are slow, do something else. Take the time to work on other projects or do something recreational.
Lacking detail in a trading plan
Some traders have a trading strategy but it lacks detail or they are not in the habit of following all the detail.
A trading strategy should provide a plan for each and every trading day. It should detail when to trade, what to trade, how to analyse the charts, what to look for when entering a trade, what to look for when exiting a trade, stop-loss placement, take profit placement, how much to risk per trade, what to do during major news events, etc, etc.
The plan should be so detailed, that there is no room for emotion or confusion.
If you don't have a detailed trading strategy, then get one!
The Ugly - never do this. If you are, stop!
Trading without a stop-loss
Oh dear... What a mess this can cause...
Trading without a stop-loss is simply stating that you are not willing to take a losing trade.
Most traders that let their losses run can avoid this slippery slope by simply setting a stop-loss each time they trade.
Traders that don't want to set a stop-loss are simply being emotional - they do not want to have a losing trade.
Revenge trading
You've taken a hit. Perhaps the last 3,4,5,6 trades were losers. It's time to take revenge by doubling-up and entering any sort of trade, just so you have a chance of recuperating your losses.
Guess what? The drawdown will continue and you are simply digging yourself into a deeper hole.
Revenge trading is emotional trading. Whenever we trade emotion, expect their to be negative consequences.
I suggest taking a break each time a trade is closed. Whether a losing or winner trade, take a break. This can help you to refocus and you may not be tempted to revenge trade, if you are not at your desk.
Opening accounts with unregulated brokers
Trading with unregulated Forex brokers increases your chance of being scammed. Most people open these accounts for one of three reasons...
One. A lack of industry education. They may not even know that Forex brokers should be regulated!
Two. Greed. A broker is promising them huge returns. Three. Leverage. They want to trade with a large amount of leverage.
You can learn more about choosing a trustworthy and regulated broker here.
If you need a trustworthy and regulated Forex broker, check out my Forex brokers page here.
Strategy hopping
Welcome to the losers club.
This club entails all members to join the losers circle, which basically means you learn, create, or buy a trading strategy, trade it until you lose money, and then start the circle from the beginning.
If you hop from trading strategy to trading strategy, you are never going to make it.
Guess trading news events
This is just stupidity. You are simply gambling. Stop it.
How to prevent or break bad and ugly trading habits?
Education. Learn as much as you can before going live. Ensure you know your strategy and have seen the edge that it can provide. Ensure that your broker is legitimate and reliable. Ensure you know how to place market orders, calculate position sizing, close part positions, and everything else you will need to know to actively trade the Forex markets.
Overcome your trading emotions and stick with your trading strategy. A lot easier said than done. I suggest reading my trading emotions post.
Become more capitalised. Having more trading capital will help you to take trading more seriously. Sometimes sticking with demo and saving for a bit longer can pay off in the long-term.
Listen to the podcast below...
