TRADING

THE ARTICLE IS A BIT LONG BUT TRADERS NEED TO READ IT OVER AND OVER!

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Excerpt from ALden's articles!

These are mistakes that almost 99% of traders have made, because it is human instinct. There are lessons that you only learn wrong when you lose money to the market. It's not that you've never read or known about it, it's not that no one has ever reminded you, but because you keep repeating it with the hope that "this time will be different".

I used to be like that, and I know you may be in that stage too. And Alden shares with you these 8 mistakes and solutions for each mistake, which even people who have analytical skills can repeat.

1. HOLD WINNING ORDERS FOR TOO LONG LEADING TO LOSS OF PROFITS

This is a situation where the trader has a profitable order but because of greed, they continue to hold the order for too long in the hope of making more profit. As a result, the market reverses and the profit evaporates or even turns into a losing order.

This error comes from greed and overconfidence. The trader does not have a clear profit-taking plan, does not determine a feasible TP before entering the order, or when reaching the TP point, they ignore it because greed has already wanted more. They are dominated by emotions instead of knowing enough and following discipline.

There is a famous saying in the financial world: "Bulls make money, bears make money, but pigs get slaughtered". The main idea is that people who don't know enough, too greedy will often lose heavily.

HOW TO FIX:

- Set specific profit-taking goals: Determine the target profit level or use a trailing stop. When the price reaches the target, take profits according to the plan instead of unrealistic expectations.

- Before entering an order, determine whether the market is in a strong or weak trend phase to determine the appropriate thinking: the price only runs strongly when the market is in sync and has a strong trend, and the remaining 80% of the time are medium and small waves, we are not allowed to expect too much from the price.

- Follow the exit order discipline: Build an exit order plan before entering the order and seriously implement it. Don't let the emotion of greed make you change your decision.

- Know enough: this is still an advice, but you must go through the experience process to draw out for yourself. The market is always unpredictable. Being satisfied with the plan and profits set will help preserve achievements. Set the rule "do not let profits turn into losses" and adhere to that principle.

2. ENTER ORDERS EARLY WHEN THE SIGNAL IS WEAK, LOW PROBABILITY, LOW R:R RATIO

Many traders are impatient, rushing to enter orders when the signal is not really clear or the setup is not good enough. They may open orders just because they are afraid of missing an opportunity, even though the win probability is low and the Risk:Reward ratio is not favorable. This is a type of trading that comes from the psychology of FOMO (Fear of Missing Out), the fear of missing an opportunity causes traders to chase orders even when the conditions are not ripe. The outcome is usually losses due to entering orders at an unfavorable point or the market quickly going against predictions. They may make money in good situations, but they are eroded in situations where they should have been sitting still, but they act.

This error comes from impatience and fear of missing out. Traders feel uncomfortable "standing outside", always wanting to have an order, so they enter orders regardless of whether there are enough signals. In addition, it may be due to overconfidence or the illusion of control, thinking that they can read the market early. This is also a form of overtrading, trading too much because they don't want to wait.

HOW TO FIX:

- Change your mindset: Most traders enter the market with a rosy view that this is a place full of opportunities and profits, the waves will quickly help them become rich. That is a completely wrong mindset. On any graph, risky waves, unclear signals are always much more than profitable waves. So if the risky waves have a 50/50 win rate, is it any different from us entering a gambling game that we don't know. So we must change our mindset, that the market is a place full of risks. We need to avoid risks before thinking about making profits. When you have that mindset, you will be more careful before making risky decisions.

- Patiently wait for confirmation signals: Define a clear set of criteria for entering an order (for example: enough indicators, complete price patterns...) and only enter an order when all criteria are met. Remind yourself that "not trading is also a state", better than entering an order randomly.

- Focus on R:R ratio and probability: Don't accept deals with low win probability or unfavorable profit:loss ratio because of impatience. Remember that a few high-quality trades are much better than many low-quality trades.

- Control FOMO: Whenever you feel the urge to enter an order to "catch the wave", stop and evaluate whether it is really a good signal or just emotion. Always remember that the market has countless opportunities. Missing one opportunity is not a disaster if it is not qualified, there will always be other opportunities.

3. FOMO TRADING, RECOVERING, CHASING PRICES

These are errors caused by strong emotions. Fomo chases the price because of fear of missing the opportunity, because of regret, usually chasing buys when the price has risen high or fomo sells when the price has fallen sharply. And revenge trading is after a small loss, the trader immediately tries to enter another order with the expectation of recovering the money just lost. Both of these behaviors are often irrational and hasty. FOMO causes traders to chase orders when the price has run far, while "recovering" is the act of trying to recover losses quickly by entering orders randomly with high risk, and often leads to even heavier losses.

The reason for these emotions. Fomo comes from herd mentality and greed. Seeing others making profits or the price running strongly, the trader is afraid of missing out so they jump in late. This is a form of herd behavior, people tend to be swept along by the crowd, especially when the crowd is excited. FOMO often causes traders to buy high and sell low unwisely.

The behavior of "recovering, retaliating against the market" comes from psychological pain after losses and ego. Many people cannot accept that they were wrong or lost money, so they angrily want to "retaliate" against the market immediately. They may also fall into gambler's fallacy, thinking that after a series of losses, it's "their turn to win", so they bet big with the mistaken belief that they are guaranteed to win in the next order. In fact, this is just an illusion and often leads to compounding losses.

HOW TO FIX:

- Recognize FOMO and anger: The first step is to be aware that you are being driven by FOMO or are angry after a loss. If you feel restless because you are afraid of missing out, or boiling with anger wanting to recover the money you just lost, stop trading temporarily. Don't make decisions when your psychology is not calm.

- Set a "time-out" rule after losses: for example, after each large loss or a series of 2-3 consecutive losing orders, take a break for a few hours or stop trading for the rest of the day. Time will help you regain your composure and analyze more objectively, avoiding rash decisions.

- Plan for FOMO situations: Prepare a plan if you miss an opportunity (for example: wait for the price to pull back to enter later, or simply skip it). Remind yourself that the market always has new opportunities, you don't necessarily have to participate in every fluctuation.

- Maintain discipline in risk management: Never increase the trading volume beyond the capital management rules because you want to recover losses. Remember that preserving capital is more important than recovering quickly. Focus on the correct trading process rather than the money lost, money will come if you trade disciplined and effectively.

4. HESITANT, NOT DARING TO ENTER ORDERS

In contrast to FOMO, some traders are too hesitant and do not dare to enter orders even when they see a clear opportunity. They analyze a lot but when it comes to entering an order, they hesitate, afraid of being wrong, and ultimately miss the opportunity or enter too late. This phenomenon is also known as "analysis paralysis". Fear of losing or making mistakes makes traders not dare to implement the plan, leading to missing good deals.

This error comes from fear of risk and lack of confidence. According to Kahneman's prospect theory, people fear losses more than they crave profits. The fear of losing money makes traders avoid making decisions to avoid facing the possibility of losing. In addition, after a few losses, the psychology will become more cautious, forming an avoidance bias, constantly remembering the previous losses and thinking that this time will also lose. Traders can also be perfectionists, wanting to wait for a "100% sure win" signal so they never feel secure enough to enter the order.

HOW TO FIX:

- Correct thinking: avoid risks in low probability situations, but when a situation has enough elements to enter the order, we must accept its risk. That risk thinking is like the cost of doing business and making profits. Timely SL orders are the cost for us to find profitable orders.

- Accept risk at a small level: If you are afraid of losing, reduce the trading volume to a level that you can accept the risk. When the risk is small, the psychology will be less stressful, you will easily enter the order. Gradually, increase the order size when you are confident.

- Think in terms of probability, not absolute: No trade guarantees 100% win. Practice thinking in terms of probability, if your system has a 60% win probability, you must enter enough orders for the law of large numbers to take effect. A losing order does not mean you are completely wrong, it is only in the 40% losing probability.

- Set a deadline for analysis: Avoid rambling analysis by setting a fixed amount of time or number of criteria to make a decision. For example: "If 3 criteria X, Y, Z are satisfied, enter the order, do not hesitate". Follow that principle to avoid analysis paralysis.

- Train and build confidence: Trade on a demo or small account to practice decisive order entry reflexes. Record a trading diary and the times you missed opportunities due to hesitation. This helps you realize the cost of hesitation. Gradually, you will be more confident in your system and abilities.

5. LAZY, NOT ANALYZING SPECIFICALLY BEFORE ENTERING ORDERS:

Some traders enter orders without specific analysis or planning. They may enter orders based on emotion, rumors, or based on superficial analysis. This is a sign of laziness or lack of discipline in the preparation stage. Trading without careful analysis is no different from gambling, betting on hope for luck instead of having a clear strategy.

This error comes from subjectivity or laziness. Some traders (especially when they have just won a few orders) become complacent, thinking that they "know enough" so they skip the planning step. There are also cases where they are simply lazy and don't want to spend time researching the market. The human brain often tends to "jump over" complex steps to save energy, this is a cognitive bias that causes traders to skip necessary analysis.

HOW TO FIX:

- Correct thinking: Trading is also a hard job, you need to study and work hard to make a profit. There is no such thing as "easy work, high salary" in any profession.

- Build a detailed trading plan: Before entering an order, clearly define the entry point, exit point, stop-loss level, take-profit, and the reason for entering the order according to the analysis. Write it down or use a checklist to ensure you have analyzed it fully.

- Look back at the losses due to lack of analysis to learn that discipline and analysis are the key, there is no shortcut.

- Increase learning and recording: Maintain the habit of reading market analysis, learning and writing a trading diary. This creates motivation for you to analyze each order seriously, and also helps to reassess which decisions were not well prepared to correct. Alden always writes analysis daily and evaluates that analysis at the end of the day.

6. CLOSE EARLY, EXIT ORDERS TOO EARLY:

This is the opposite error of error number 1. Instead of holding profitable orders for too long, traders take profits too early as soon as they see a little profit. For example, the price runs a little and they rush to close the order, although the original plan expected a larger profit. The consequence is that the profit is cut short, not compensating for other losses, reducing overall performance. Many new traders often make the mistake of "closing early" due to the fear that the market will reverse and lose the small profit they have.

This error is mainly due to the fear of losing profits, an expression of avoiding losses, or because the trader made error number 1 too many times, leading to fear of holding profits. People are usually more pained by losses than happy with the same level of benefits. Therefore, when the order is profitable, many people are afraid that if they don't close it immediately, the market will reverse and turn profit into loss. That fear makes them happy to close early rather than risk waiting to reach a larger target. In addition, in finance, investors often tend to sell assets that are profitable too quickly and hold assets that are losing for too long. This means that taking profits early is a common psychological tendency. Furthermore, lack of confidence in the plan and lack of patience also contribute to traders not daring to hold the order long enough to reach the target.

HOW TO FIX:

- Identify the correct market pattern: if the market is in a strong trend, we are allowed to expect more.

- Use the method of moving the SL order according to the wave to preserve profits or take profits in parts: moving the stop-loss according to the price helps protect profits while still allowing profits to run. Or you can take a part of the position when reaching a certain profit level, the rest holding according to the trend. This ensures that you do not lose all profits if the market reverses, while still giving the opportunity to achieve higher profits.

- Cultivate patience and look at the big picture: Remind yourself of the long-term picture instead of short-term fluctuations. If your analysis shows greater profit potential, be patient. Review the early profit-taking times to see if holding according to the plan is more profitable, this lesson will help you trust the plan and restrain the need to close early.

- Traders need your mental training, must be alert to close at the right time in weak wave phases, with reversal signals. Must also make a good assessment to know when to hold profits.

7. CLEAR TREND BUT CANNOT HOLD THE ORDER IN THE CORRECTION WAVE

This error is also a type of exiting orders too early, but specifically in the context of the market having a clear trend, the trader has entered the correct trend but cannot withstand a corrective wave and rushes to close the order. For example: you short and the price is falling according to the trend, but when the price has a slight increase (pullback), you are afraid of losing part of the profit so you close the order, and then the price continues to fall according to the original trend that you no longer participate in. Result: missing the opportunity for the majority of the trend, just because you can't hold the order through a small correction.

The main reason is fear, specifically the fear of losing existing achievements, similar to error number 6. Traders lack patience and do not trust their original analysis. Every time the market goes against a few prices, they panic and think that the trend has reversed and run away early. In fact, the market always has natural corrections. The inability to accept the pullback shows that the trader is too focused on short-term fluctuations instead of the big picture. In addition, it may be due to a lack of knowledge of market structure (for example: not realizing that it is just a pullback wave that has not broken the trend). The psychology of "being overly fearful" makes them equate every pullback with a reversal.

HOW TO FIX:

- Understand the trend structure: Equip yourself with the knowledge that in an uptrend/downtrend, the price always has corrections against the main trend. Learn how to distinguish pullback waves from reversals (based on price structures, price patterns). Once you have identified a pullback wave, you will hold the order more calmly instead of panicking.

- Adjust reasonable stop-loss points: Instead of closing the order as soon as the price goes against a little, use a trailing stop or place a stop-loss at an important technical level (for example: after the nearest bottom/top of the trend). Thus, the order only exits when the trend actually reverses, and small fluctuations will not kick you out of the market.

- Divide the trading volume: If seeing the price pull back makes you too worried, consider taking partial profits to realize part of the profit, the rest continue to hold. Or trade with a smaller volume so that price fluctuations do not cause great psychological pressure. Then, you will easily hold the order through the pullbacks.

8. CONTINUOUSLY CHANGING SYSTEMS WHEN FACING LOSSES

Many traders constantly jump from one trading system to another whenever they encounter a few losing orders. For example: they just tried method A, encountered 3 losing orders in a row, immediately abandoned method A to switch to method B. Then method B also has a losing streak, they switch to C... Just like that, no system is applied long enough. The consequence is that there is no consistency, the trader does not master any method, and it is very likely that every time they change the system, it is exactly when the old system is about to have a winning deal. Constantly changing systems after a few losses like this often prevents traders from ever seeing the true effectiveness of any strategy.

This error is due to unrealistic expectations and impatience. Many people enter trading with the expectation that the system must win almost every order, so if they lose a few orders, they rush to conclude that the "system is bad" and look for a new one. This is the influence of them being overly impressed by a few recent results (losses) and forgetting that in the long run the system may still be effective. In addition, the psychology of fearing losses also contributes: after a series of losses, they lose faith in the method, fearing further losses, so they want to find something "safer". Another reason is the attractiveness of the new, when they see others showing off another system that "wins big", they easily waver and think their method is inferior. All of this leads to inconsistency, which is a vital factor in trading.

CONCLUSION:

Trading psychology is an integral part of the trading process. Identifying and overcoming the 8 common psychological errors above requires time and persistent self-training. Always remember that discipline and self-control are as important as technical analysis or market knowledge. Successful traders are not necessarily people who never make mistakes, but people who are aware of their psychological weaknesses to correct them.

If you recognize yourself in one or more of the above errors, it's okay, I've been there too. But the question is, have you ever asked yourself: "What did you learn after each mistake you made?" and "avoid or not repeat them again?"