- New traders keep an opinion even after the market has proven them wrong, day after day. A stop loss is there to keep losses small, listen to a stop loss placed in the right price level will save you money.
- New traders add to a losing trade making it bigger and bigger hoping for a reversal to get the trader back to even. Increasing a trade when on the wrong side of a trend is expensive.
- Trading a big position size because you are 100% sure that the trade will work out is very expensive when it does not work out. The obvious trades are rarely the good trades.
- Taking a trade that you do not fully understand can be surprising expensive. It could be wide bid/ask spreads, volatility, liquidity, time decay, implied volatility collapse, leverage, margin, etc. Ignorant trades almost always end badly. Know your trade before you enter it.
- Being a bear in a new bull market is usually expensive.
- Being a bull at the beginning of a bear market can be expensive trying to catch falling knives.
- A trader starts down a dangerous road when instead of taking their initial stop loss when wrong about a trade convert their trading plan to hold and hope. In the markets emotions are expensive.
- Buying far out of the money front month options with terrible odds of making money usually lead to losses.
- Risking a large amount of money trying to make a little bit of money is almost always an unprofitable endeavor as a big loss will wipe out a lot of small gains.
- Trading first before you have done the proper homework on what leads to trading success will lead to paying tuition to other more skilled market participants.
“The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system.” -Ed Seykota
“If you diversify, control your risk, and go with the trend, it just has to work.” -Larry Hite.
