The difficult things every trader must overcome.

Yesterday I sent out a tweet asking what the three hardest things  for a trader to overcome.  The things that are hardest to overcome are what makes a long career possible.  In the past and today, when I come up against these challenges I revert back to this question: Do I want to be a trader?  With enough experience; it is not whether you know what to do, it is whether you want to do it.

Trading price action rather than beliefs.

This is a hard one because the feedback loop is messed up.  Your beliefs can make you money but so can a random buy or sell order.  Focus on what you can do repeatedly.  Know that you will more easily remember the good trades you were not in than the bad trades you were in.

Taking profit and being patient.

This is one in the same in my eyes.  Taking profit and being patient is easier if you rely on your trading plan (rules applied to strategy) and market awareness.  Most people have invested more in themselves than their trading plan.  Start investing in your trading plan to take some of this pressure off.  React to what the market is doing not where it is in relationship to your entry prices.

Analysis paralysis.

The purpose of trading is to execute information in accordance to your trading plan.  The purpose is not to gather enough knowledge for certainty.  The certainty comes from knowing you can adjust and hopefully use proper risk management tools.

Fear of loss was the primary issue, and resulted in early profit taking and focusing on small instead of bigger trends.

Separating you from your money is traumatic, it is most traumatic if you can’t see a way to get it back or get any value from it.  Understand that every trade offers you experience and information.  It is hard to see this when you are getting your face kicked in but when you lose do not lose the lesson.  Loss is a cost of doing business.

Price Anchoring. 

I have gotten a lot of push back for this but if you are tied to one price eventually you will be at a disadvantage. The goal is to get to your max position as the market and trading plan allows you.  Trading a 1 lot is a lot harder than trading a 3 lot or a 10 lot.  Trading one price is a lot harder than trading multiple price.  This is a skill that takes time and should be handled with care and mastered with their money.

Missing or botching a trade at a price.

Missing a trade or botching a trade is as much a part of trading as commission is.  It is the cost of doing business. Learn from it and find if there was some part of the picture you were missing.   Do not let one mistake turn into two.

Confirmation bias.

A little information is dangerous.  The power of the social finance web is that you can talk and read many views. Take advantage of this but use in moderation.  Write down your reasons for your confirmation bias.  In whippy markets this is especially dangerous.

1) Not, 2) going, 3) broke

Whatever you are comfortable losing, risk that much.  Your liquid net worth should not be equal to your trading account balance.  If you have a million maybe you only want to risk 25,000 or if you have 25,000 maybe only risk 15,000.  This is up to you, have limits, they force you to pause when you need to pause the most.

Getting chopped up

This is another cost of trading.  I have scratched or gotten out of many trades before they take off.  I have been long all day and sell one rally only to have it blow up on me.  Always have a reason for an action and you can learn from it. You should be aware of what trades have been working in the recent past and notice when it changes.   Protect yourself no matter what.  I usually get chopped up when I am bored or I “have” to make money.  Taking what the market gives you after it has been giving so much is hard but a necessary adjustment.

Knowing the situations when these challenges are most likely to pop up is part of your internal awareness.  Do not get frustrated if you can’t change it right away.  First you have to recognize it, then learn how to minimize the damage, stop the damage and repeat the process.

We would really appreciate your feedback, if you like, hate, or think we are full of crap. Please leave a comment, a voice mail (312) 725-9121, email info @ traderhabits (dot) com or twitterstocktwits, and facebookSubscribe to Traderhabits by Email

2 Responses to The difficult things every trader must overcome.

  1. […] Don't miss Eli Radke on the 9 most difficult obstacles traders must overcome.  (TraderHabits) […]

  2. kevin munro says:

    Strong advice.     

The services and materials provided should not to be interpreted as investment advice, an endorsement of any security, commodity, future, or personal investment advice, or an offer to buy, sell, hold or trade futures, options or commodity interests or a recommendation to buy, sell, hold or trade futures, options or commodity interests. You assume the entire cost and risk of investing and are solely responsible for any and all gains and losses, financial, emotional, or otherwise, experienced, suffered, or incurred by you.

Read previous post:
Getting out of the retail mindset.

I want to preface that my post, 3 differences between a professional trader and a home gamer, is nothing against...