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profitable trade, they are just as curious about why the trade is profitable as for unprofitable trades. They are cautiously optimistic when the market is moving in the direction they intended, and they exit the trade either by a preset strategy or when the set of circumstances under which they entered the trade are no longer present. They see it as more of a strategy exercise, with constantly changing variables or trade market structure imbalances that have the best risk-reward ratio. They do not make money every time or even the majority of the time, but their losers are smaller and their winners are bigger. |
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2. Thinking that things won't change. Another big mistake is perceiving a string of winning trades as proof of their trading prowess and failing to recognize that the set of circumstances in the marketplace that made these trades winners is temporary and can change overnight. They may have gotten lucky, or they may have understood briefly the forces affecting the market and anticipated movements correctly, but it was just that . . . briefly. |
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3. The third mistake is overtrading. This can mean both the need to always have a position on, regardless of whether the trader's criteria are met, and entering and exiting trades without a valid reason. |
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4. Lack of discipline. Countless intelligent traders trade successfully for a very extended period of time only to lose it all on one trade or one very short, defined period of market turmoil. I've seen it happen to some of the smallest individual traders and the largest money managers in the world. The ability to adopt and adhere to a rigid, per-trade risk limit can be difficult for all traders. |
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5. A fifth mistake is the inability of traders to adapt to either a substantial increase or decrease in funds. The trader who has the enviable problem of a sudden increase in account size often fails to realize that his particular trading system or the market that he trades may not be as suited to the larger positions that he will be managing. A 10-lot market on-close order in the soybean oil futures contract will have a greatly different impact on the market than a 500-lot order. |
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