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3 Costly Trading Habits That Are Holding You Back

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Developing costly habits as a Forex trader is all too easy. There is no boss to tell you what to do and when to do it, and you can risk as much or as little as you like.

While these types of freedoms are what attract many people to trading, they can also create habits that are difficult to overcome. In fact, many traders don’t even recognize the problem until it’s too late.

That’s why I wanted to share with you three of the most damaging trading habits. I’ll also discuss a few ways to know if you’re on the right track—and what to do if you aren’t.

I could have made this post much longer than it is, but I wanted to highlight three habits in particular that I believe to be the most destructive.

Once you finish with this post, be sure to check out 50 Signs That You’re on the Path to Success. It will help to bring things full circle and give you a good idea as to whether or not you’re on the right track.

Read on to find out if you’re guilty of one of these costly habits and what to do about it.

1. Trying to Do Too Much With Too Little

Not_enough_trading_capitalTwo of the most common questions I receive are, how much money do I need to trade full time? And, what account size do I need to make x amount of money per month?

It would be unfair for me to answer either question. The answers will vary widely from trader to trader and depend on everything from your trading style to your cost of living.

Perhaps this is one time when a question is best answered with a question.

For instance, why ask how much money you need to trade full time? Similarly, why ask what account size you need to make x amount of money per month?

Some may say they are just curious. No harm there, right?

Maybe so, but my experience tells me otherwise. Traders who are concerning themselves with making thousands of dollars per month before they even have the right process in place are severely misdirected.

It would be like asking how much revenue your business can make before having a valuable product or service to sell.

However, focusing on making thousands of dollars per month exposes yet another costly habit among traders.

It leaves them in a position where they’re trying to make money. Instead of scanning their charts for setups, they are trying to rush things and double or triple their account every month.

This usually forces traders to do one of two things, or both.

  1. Trade too frequently;
  2. Risk too much per trade.

When we step back and analyze this from a distance, it isn’t too surprising. After all, if you’re trading to make $3,000 with a $10,000 account, the only way to do it would be to overtrade or overleverage your account, or both.

So what’s the solution? Focus on slow and steady returns—but only after you have developed a trading edge that suits your personality.

If you’re averaging anything above 2% profit per month, you’re doing something right.

On the other hand, if you are trying to make 20% or 30% profit per month, you are doing something very wrong.

You need a sizeable account to make sizeable returns. The only way to get there is to focus on the trading process, keep your risk small, and choose quality over quantity.

2. Mistaking Inaction for Lost Opportunity

Lost_opportunityWhat does it mean to be a trader? Is it the ability to buy or sell within a market or is there something more to it?

A trader is someone who trades, true enough. However, nobody enters this business with the hope of buying and selling currency pairs. The goal is always the same—to become consistently profitable.

So, what is it that separates the profitable from the unprofitable?

There are several factors that come into play, many of which I have written about on this website. But there is one critical piece of the puzzle that stands out among the rest.

What is it? Patience.

Most new traders make the mistake of thinking that they must be doing something at all times. It’s a habit that leaves them feeling like they’re somehow losing if they aren’t risking capital.

On the other side of the market, we have the profitable traders. These individuals understand that becoming profitable is about knowing when to trade.

They know that 99% of the time there won’t be anything for them to do. Even when they have an open position or two, they know that the best course of action is to not interfere.

You could say that these traders have adopted a minimalist approach, both in the number of trades they take each month and their interaction with open positions.

But make no mistake, nobody enters the market with this level of patience and discipline. It takes years of practice to get it right.

It’s also much more than just a way of trading (or rather not trading). It’s a complete mental shift. It isn’t enough to just tell yourself to stay patient. You have to work on seeing the market in a different light.

For instance, those who struggle look for something to do each day. They wake up and check the markets first thing and start searching for something to do.

On the other hand, profitable traders scan their charts briefly. If they don’t see something worthwhile, they know to walk away and come back later in the day.

It’s a quality over quantity approach to the markets. The truth is, it only takes one good trade each month to make a considerable return.

There’s no need to take 20 or 30 trades per month, and profitable traders know that.

3. Trading the News

Market_newsNews is a key driver of the Forex market. It moves when there isn’t any news, but events like central bank rate decisions and non-farm payroll are catalysts for all markets, not just currencies.

These and other events also create the most volatility. That is, they cause the market to fluctuate quickly within a short period of time. And we all know that volatility can produce profit. After all, you can’t make money if the market doesn’t move.

However, that movement can easily trigger losses, and in a short period of time too.

This is what happens to most who try to trade the news. They see the volatility as a chance to double their account. Instead, they usually end up with a massive loss or worse, a blown account.

There are three reasons why trading the news is a bad idea.

1. You have no edge

If you want to succeed as a Forex trader, you need an edge. It includes everything from the strategies you employ to the currency pairs you trade.

The problem with trading the news is that you have no edge. You can’t possibly know whether a central bank will raise, maintain or cut the interest rate.

You could venture a guess, but you won’t have an edge. In fact, guessing is the opposite of what having a proper trading edge is all about.

2. Volatility goes both ways

Markets don’t move in straight lines. This is particularly true following a volatile news event like non-farm payroll or a Fed rate decision.

It only takes watching a 5-minute chart following the news to see that volatility goes both ways. Although the market may finally make an extended move higher or lower, it’s not without a lot of indecision along the way.

So, even if you guess the eventual direction correctly, there’s a strong chance you will get stopped out long before you see any profit.

3. Unpredictable market reaction

Even if you guess the outcome of a news event correctly and don’t get stopped out too soon, there’s still a third hurdle to overcome.

How will the market react to the outcome?

The answer to this question is as unpredictable as the outcome of the event itself.

For instance, the non-farm payroll figure could come out well below expectations. However, that doesn’t mean the U.S. dollar will move lower against its counterparts.

Here is one recent example where the average hourly earnings, non-farm payroll, and unemployment rate all disappointed.

Poor NFP report

Most traders would assume the U.S. dollar would move lower on such dismal numbers; thus the EURUSD would rise.

As you can see, market participants had other plans.

EURUSD_down_day

Note how the EURUSD sold off following relatively poor figures out of the U.S.

This proves that it isn’t enough to just look at the numbers. In fact, without paying attention to the market’s reaction, figures like those above are rather meaningless.

So you see, there are three reasons you should avoid trading the news. There’s far too much uncertainty and volatility surrounding events like the ones mentioned above, making trading them a pure gamble.

A better approach is to watch for buy or sell signals once the dust has settled. This is what I do, and it’s how I’m able to trade Forex without watching the news.

Final Words

Some costly trading habits are easier to spot than others. Similarly, some habits are more damaging than others. In my opinion, the three we just discussed are arguably the most damaging and often unsuspecting.

It’s important to understand that you won’t make $100,000 per year with a $10,000 account. And if you do, you’d be wise to pull some of those profits out because it isn’t sustainable.

It’s better to keep your risk low with the goal of small and steady profits over time than go in with an “all or nothing” mindset.

The best traders in the world know that 99% of the time there won’t be anything for them to do. Having the patience to wait for the very best setups is what will take your trading career to the next level. Constant action, on the other hand, is a habit you should avoid at all costs.

Instead of trying to trade the news, try “reading” the price action that follows. There’s far too much uncertainty and volatility during high-impact news events to attempt trading the initial reaction.

By trading the aftermath, you avoid the volatility and also get a better perspective of whether buyers or sellers are in control.

Your Turn

Are you guilty of any of these costly trading habits? Did this post help?

Leave your comment or question below and I will get back to you shortly.

  • Irfan mughal says:

    yes, you r 1000% right, i had made these all mistakes many times and washed my account,
    as u say, if i deposit 1000$, before the starting i think that 500$ profit in a month is a big achievement, but i trade and gain 300$ in only a week, then i cant patience for good trend or signals, continuosly i trade & trade.

  • Mfundo says:

    The post really helped I tend to focus on news instead of my daily price action l.

  • Jide Amusan says:

    Hi Justin, you gave special offers of $99 for 3months which I bought, but up till now I am still yet to get confirmation email and my account has not been set up and the money has been taken from my account. Please I would need you to look into this.

    I look forward to hearing from you soon.

    Thanks

    Jide Amusan

    • Hi Jide, I just sent you an email. It looks like you may have entered the wrong address at checkout.

      Let’s continue this conversation via email.

  • Roy Peters says:

    Excellent article.

  • JAIME I ADE says:

    I’ve been reading/listening the web and even youtube. Almost say the same thing “Be patient”if you can not understand the chart, leave that par. Don’t hurry they say. But almost all charts could not be understood since trading seem to be the hardest thing in the world. I even say to myself that I better go and study law and I think I could achieve that easier than trading. Wait! there’s a monthly payment were oblige todo that makes things to be on balance to have profit to be able to pay the site or broker. What’s your take on that bright boy.

    • If the law is your passion, study law. If it’s trading, learn how to trade.

      Everyone needs to discover and pursue their passions in life. If you don’t have a burning desire to become a profitable trader, you should think long and hard about why you’re trading. It may not be for you.

      To me, life is never about choosing the easiest path. It’s about finding and pursuing your passion, regardless of how difficult it may be.

  • Relebohile says:

    Thank you for the post and you are absolutely right. I have been a victim and the first habit happened to me yesterday where I tried to do more with the little I had. I traded the CPI news for GBP and even though it started all well, I ended up trying to maximize my profits and opened more positions with a bigger lot size. Unfortunately, the pairs I had opened were about to retrace and that didn’t work out so well for me.
    Thank you again for the post and I sure learnt a lot.
    The aim now is to stick to proper money management and wait for the setups to come to me before acting. Quality over quantity.

  • John says:

    Great post. The first two are a real challenge to me. Human nature perhaps ?

    • Many thanks, John. I would argue that all bad habits we pick up as traders come down to human nature. There’s nothing inherently difficult about trading. It’s emotions like fear and greed that crank up the difficulty meter. Learn to conquer those and you’re 90% of the way there.

  • Jane says:

    Guilty as charged. All

    • You’re not alone, Jane. At least you’re aware of your mistakes, which is a great place to start.

  • Bruce Gordon says:

    This is so true. I just learned the hard way. In August my impatience cost my account balance to drop from $ 800.00 to $ 50.00. I made 235 trades, wrong move. Guys don’t overtrade it’s not worth it be patient.

    • You got it. Slow and steady profits.

    • Roy says:

      Damn…800.00 to 50.00. trading really can teach a lesson to us about overtrading.

  • Rod Jamal says:

    So very true Justin. I have been guilty of all these mistakes, hence my poor track record.
    As you said, I am still in the game and have changed a lot for the better. Yet to see worthy results though.

    • Stick with it, Rod. You may be closer to consistent profits than you realize. And as long as you’re still in the game and not giving up, it’s impossible to fail.

  • Ronnie RT Maronza says:

    I am so guilty abt dis infor justine bcos i am a victim of dis habits,i was also trading de news mixing all dis timefrms i’d lyk to tel u dat dis infor jst opened my mind so BIG!!!!! Tnx for de lite Mr Bennett

  • Endy says:

    “… if you are trying to make 20% or 30% profit per month, you are doing something very wrong.” Yes, Justin, without prejudice to the excellence demonstrated in this post, how do you come about this calculation of the right size of profit?

    • Determine your risk and let the profit take care of itself. If you try to make a certain amount of money per trade, I can all but guarantee that your risk will exceed your comfort level. That’s what causes your emotions to run wild.

  • Darius says:

    I could have patience if I knew what is right trade and what is not.

    But I also know one coach who lives from trading and he trades intraday, he does not leave position even overnight because he says its too scary to leave it without watching. And he trades news, he listens news all day (which I would get tired of the negativity).

    But from him it looked that you do not need to trade long time frames. So this is confusing.

    He agreed that it is profitable to trade without following news, only that profits are smaller.

    I traded GBPJPY sell recently, it went fine until it started to turn around. Maybe I needed to set trailing stop to lock at least some profit.

    I do not know and I hate it 🙁

    • There’s no single best way to trade the markets. Some use intraday charts while others, like myself, use the daily time frame. It all depends on what suits you best.

  • philip says:

    This is a very educative and interesting write up. But don’t you think that targetting a profit of about 2% for 20 trading days in as month is too low? I agree with you that greed is one of the undoing of majority of traders.

    • Darius says:

      2% per month imo is very good. 12 monts – 24 % per year. Where else do you get such dividends for almost no work? As Justin sais you have to not trade often. As I understand, once you know what to do, its like 1 hour per day of work. So its insane revenue. For this amount of work.

    • Philip, I didn’t say you should target 2% profit per month. Here is what I said:

      “If you’re averaging anything above 2% profit per month, you’re doing something right.”

      But even if you averaged “just” 2% profit per month, you would have over 20% profit by the end of the year. Where else are you going to make a return like that? If you know of something better, please do share. 🙂

      • Yusfatiger says:

        Hi! I am into cryptocurrency trading and I made roughly 11% in three weeks , although price still fluctuates . Is that % reasonable or what do you suggest??

  • Darius says:

    You can definitelly make much more % with poker at low stakes 🙂 Like with 50 $ bankroll, playing NL2, if you do 10 bb/100 which is low winrate for NL2, you make 20 cents per 100 hands.You play lets say 500 hands per hour. So you make 1 $ per hour.

    Lets say you play 6 hours per day. That is 6 $ per day.

    20 days pre month = 120 $ per month.

    So you make over 200 % per month 🙂 thats good for beggning. Not good because its not enough for living.

    The only problem is that if you have 100k $, you still make same 120 $ per month because having more money does not make automatically winning more. Winning more requires beating higher limit and that is the hard part of poker.

    And its not like working 1 hour per day.

    It could be done together with forex if you learn forex well because you should have lot of free time.

  • Sihle Magagula says:

    Absolutely spot on, it has been 4 months since I started trading and I did all the things not to do, suprisingly I double my account in my first trade during French elections and blew the account the following week. I have been naive not to learn and develop a trading edge.

    However after constant losses, I stopped trading and started learning. Am getting there, still a long way to go and thanks for your lessons.

    • The beauty of trading is that you will never stop learning. I’ve been at it for over a decade and I still learn something new every week. Glad this post was helpful.

  • Howard says:

    Justin, you are right on target with this post. Over trading has been the main reason for my losses, due to wanting to make more money quickly & not being selective enough.

    • Glad to hear this was helpful. At least you’re aware of the problem. Try aiming for one (no more than two) setups each week. Make it your goal to take no more than two trades per week. You might be surprised by what happens after a few short weeks.

  • paulo says:

    Hi,
    Thanks for sharing.
    I´ve a micro account….that´s my only problem
    Regards

  • mithrajeewa says:

    The best advice for beginners. Thanks lot.
    mithrajeewa

  • Alwyn says:

    Yes Justin it did, thanks!

  • kuma says:

    you discussed very important facts in a clear cut manner.Eg.minimalistic approach -becomes meaningful when you give that best traders have minimalist approach having one or two positions. advise as not t have 20 trades per month. Thanks

    • You got it. In my humble opinion, you don’t need 10 setups per month much less 20 to make money in this business. But regardless of how many you take, a minimalist approach is always preferred when trading price action.

  • Solomon says:

    Thank you for this piece of advise.This is helpful indeed.

  • Felix Uchendu says:

    Please do you have a signal service with exact entry, stop loss and target? I want to subscribe to it. Inbox me please. Thanks

    • No sir. I do have a community that teaches you how to trade, but I don’t believe in handing someone a bunch of buy and sell signals. Learning how to become profitable is a far better approach.

      You can learn more about the community during the webinar: https://dailypriceaction.com

  • Kopano says:

    This post was longer than I expected but it was worth reading. Thanx I have noticed some of my harmful habits so this post was ab eye opener.

  • shyamal says:

    BOE rate decision has never changed this year. yeaterday we knew it will be the same.. just like that GBP went up.. and all the currency pairs involving GBP went up or down by more than 100 pips.. is it a bad decision to trade this particular news (BOE RATE DECISION) ?????

    • I think it’s a bad idea to trade any news event. That’s why I included #3 in this post.

      • Sandi says:

        I always wait 1hour before and 1 hour after the news to trade. I have a very small account, my problem seems to be the stop loss amount. I can ‘t usually trade because the stop loss would have to be too far away, or I will get stopped out. I really get confused as to how much I can trade On 700.00. I never want to lose more than 15..00. Is that a fair amount or is it too much? Can I still trade the larger time frames, I feel it is very difficult. Any advise?? I really enjoy reading your posts.

  • Farai says:

    Thanks a lot. Am a beginner and was making the mistakes you pointed out

  • David Mitchell says:

    Hi Justin

    How would you manage say 3 open positions heading into a news event that will impact these trades.

  • Hi Justin…thanks a lot. i am learning from you everyday…..wish i followed you when i started out. You the best

  • Paul says:

    Hi love your web site and info. Notice you are linked from Forex Factory to – another good site.

    I mainly work in the Music Business but have started trading since February this year. This was partly out of the need to learn a new career and partly to make some money long term.

    I do have someone who has taught me some basics. I did a demo account, and then started with £100. I doubled this to £200 within a month or two then made my capital to £600 by adding cash. I have just doubled this to £1200. I am about to take half out but don’t know if that is the best thing to do?

    Is it better to take cash out before loosing it and keep earning over a set amount ie £600, or is it best to keep growing capital?

    I use a 2 to 1 risk reward ratio.

    I only risk 3%

    I only do one trade at a time sometimes two if I think there are two really strong set ups.

    I trade dollar pairs, Wall Street 30, DAX and the FTSE 100.

    I started on the 15m charts, then went to hourly and now am swing trading on the daily charts.

    Using pure price action with MACD and 8/20 MA crossover.

    My goal is to make £500 pm. Thus if I am increasing by 10% pm I need a capital of £5000. I do have this money but don’t want to run before I can walk. Do I even have an edge? My main problem is taking the profit half way to TP. I have lost low percentage of trades, but can’t seem to just walk away and let trade take itself out!

    Any advise would be great.

    So many questions. Fascinating industry, and I think better odds than trying to make a rock band succeed!!?

    Many thanks. Paul
    07799 652288

  • Ronnie RT Maronza says:

    Hi Justin tnx very mch Sir for opening my eyes like dis on dis forex industry,I usually used to watch too mch on de news also,bt since im in yo side my stamina cums bck in action,i wont stop applying yo teachings in ma charts💪🏽💪🏽👌

  • Roy says:

    “Traders who are concerning themselves with making thousands of dollars per month before they even have the right process in place are severely misdirected.”

    i have taped this statement to my pc monitor. it truly is about learning to become a better trader before you can even think about big money. 🙂

  • Antonio cortez says:

    Nice said, I will make u turn. Thanks

  • paul says:

    i cant imangine there is kind of people like you in the internet,ilost all what ihad invested with fake trading ideas,please help me to recover,what ilost,ihave an accout with fxpro,but i want to be your student,what am i supposed to do?

  • Walter says:

    Yes, Im trying to trade more, and I realize that 4H time frame is the one make me loose more as compared daily time frame, I win more daily trade than 4H time frame, what is the advise?

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