How to Break Bad Trading Habits and Follow Your Rules

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How to Break Bad Trading Habits and Follow Your Rules

To be successful as a trader, you must be consistently profitable over the long term, which necessitates having a sound trading strategy and, more importantly, adhering to it. Ignoring the guidelines of one’s own trading strategy on when to join and leave a trade is one of the most harmful behaviors a trader can have. To break this unhealthy habit, you must examine your perspective on the success or failure of every particular transaction.

Key Takeaways

  • To be a successful trader, you must first design a good trading strategy and then adhere to it over time.
  • One of the most damaging behaviors a trader may have is ignoring their own trading rules.
  • It is critical for a trader to judge the success or failure of each individual deal based on whether or not they followed their trading rules, rather than whether or not the trade resulted in a profit or loss.

Redefining Success and Failure in Trading

To change harmful trading habits, traders must measure the success or failure of each transaction based on whether they keep to their trading strategy rather than whether the deal resulted in a profit or loss. If you make an impulsive transaction that is not guided by your strategy, you must consider it an unsuccessful trade. You can’t encourage bad behavior by applauding oneself.

If, on the other hand, you execute your transaction as planned but still lose money, you must consider it a successful trade since you followed your strategy. Every smart trading strategy allows for lost deals. If you punish yourself for a lost transaction that went exactly as planned, you will be far less inclined to stick to that strategy in the future. This leads to impulsive trading, which may wipe out trading accounts over time.

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Example of a Bad Trade That Makes Money

One of the most prevalent poor habits that may lead to catastrophe is hanging on to a losing trade after it has moved well past your stop-loss level in the expectation that it will turn around—and then seeing it flip around and earn a profit. Profit fosters the undesirable behavior.

But it’s much worse if you pat yourself on the back for hanging in there until the transaction turned around. Profiting on a deal like this is virtually usually the consequence of chance. And luck eventually runs out, frequently with severe consequences if stop-loss thresholds are disregarded.

Using Rewards to Create Good Trading Habits

The first step in redefining success and failure in specific transactions is to alter your mental dialogue. Traders should congratulate themselves when they stick to their plans, regardless of whether the deal was lucrative or not, and they should admit failure when they don’t. They may even give themselves a modest reward for sticking to their trading strategy during a lost transaction or withhold one if they deviate from it.

In the long term, breaking your trading rules is a formula for catastrophe.

Adjusting Your Trading Plan

The first step in becoming a good trader is to ensure that your strategy is lucrative. However, market circumstances fluctuate over time, and a winning trading strategy one year may not perform as well the next. So, if you start losing money despite strictly following your trading guidelines, you can always go back and re-examine and change your trading strategy.

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Frequently Asked Questions

What does it mean to be successful at trading?

Being a successful trader entails being consistent over time. This entails being disciplined, learning from your errors, and controlling your emotions. Keep your risk tolerance in mind, and if you don’t know anything, learn about it.

How can people be unsuccessful trading?

Trading too often, succumbing to fear and greed, herding behavior, and trend following may all result in failure.

Is luck important?

Luck, whether good or bad, is always a component – yet the effects of luck fade with time, and patterns of success or failure develop.

The Bottom Line

Still, no trading strategy will succeed if it is not implemented. So, in the near run, you should define success and failure based on your level of discipline. Always adhere to your strategy, and don’t fool yourself into believing you made a profitable deal when you just got fortunate.

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