The ultimate guide to self-learn trading
Learn to trade…
Is it really possible?
You’ve worked your butt off to learn every single trading technique. You’ve spent time and money trying to find the right system, the right mentor, the right broker.
Now another monster trade is showing on the horizon.
Already performed that magical analysis of yours and now the hunter is ready.
You are waiting!
Suddenly that gigantic profit opportunity is on the move. So are you!
“Ding, dong. Order filled” – the strange mechanical voice said.
There is no escape for this monster now. This time the profit and the glory will be yours.
It was all like in the books. Like in that training you’ve spent countless hours watching.
The perfect setup. The perfect entry and…
Yet another strange-looking losing position in your statement.
Can you actually learn trading?
Or is it only for the naturally gifted? Or for those hedge fund guys and other insiders who profit only with market manipulation?
How successful traders do it? Do they know something which you don’t?
You will be surprised!
They share the same passion for trading like you and me. They have the same desire to succeed. They even walked the same path we walk now. And faced the same barriers you and I face today.
But there is one difference.
Every time they’ve hit a barrier. They didn’t ignore it. They didn’t pretend it doesn’t exist or “everything will be fine if we just forget it“.
They accept the problem. Work hard to fully identify that weakness. To get down to the roots of it. And try to eliminate it. Or at least lower its effects.
That is how by overcoming barrier after barrier, weakness after weakness, solving problem after problem they’ve learned how to trade.
This is what we should do too. To find and overcome our barriers.
Luckily it’s exactly what this guide is all about. It shows the barriers, exactly 77 of them, that stand between you and the successful trader you. Learn them and their effect on you and you’ll be able to break them.
The more barriers you overcome the better trader you’ll become.
This is what learn to trade means.
Before we start please note that this is a long article with a lot of trading barriers inside. That is why it is highly recommended to download the free checklist. It will help you track your progress of becoming a better trader by overcoming the barriers.
Get this FREE checklist and track your progress
With no more delay here are the great barriers of trading. Enjoy!”
Trading Barrier #1 - Trading for a Living, Make Big Money or Wealth Protection?
The very first barrier is something most traders don’t even consider a barrier. It can be best described as the lack of knowledge of where you stand, what is possible and what your goals are. Be clear on why you are trading or why you want to begin trading.
That might sound easy but you will be amazed how many people are failing because they didn’t get this right. Some are taking excessive risk
If you already have the money, at least a million (some might argue that it must be north of 10 or even 50 million) it might be more appropriate for you to take the path of wealth protection and be conservative. Here is where low-risk positions, hedging, diversification and so on apply.
If you don’t have it, especially if you are not even close to that amount than you might be a classical retail trader. Then you want to make money with trading. To achieve higher returns and to embrace higher but calculated risk.
Generally speaking, you might have three objectives.
First one is to try to get rich quick – forget about it, there is no such thing in trading!
Second is trading for a living – your dream of quitting your day job and cover your living expenses only by trading.
Be careful with that. It is dangerous. Trading for a living can be achieved with accounts larger than $100K. If you don’t believe me think about your desired yearly salary. Then multiply it by 5 (assuming you will make 20% return per year, on average). Quite a big amount, right?
Now let’s include the expenses. You have to eat something, right? To cover those expenses money have to be withdrawn from your trading account. All that, in the best-case scenario, will limit the growth of your account!
Don’t think that you can achieve trading for a living with a $1000 account. Maybe somebody, somewhere, somehow has done it. But the probability to repeat that is lower than the smallest number you can imagine. This is what trading for a living really is.
The third and wiser approach is to combine the daily job with trading. Thus you put part of your savings to a trading account trying to grow it over time. Here you will trade to make money, to create wealth.
Note that the trading barriers you’ll see here are more applicable for those who try to make money. This article covers wealth protection but most times this assumes an organization in place. You can’t trade $100M alone, right?
To eliminate this barrier to successful trading, you have to know where you stand, what you wish to accomplish and to act accordingly.
Trading Barrier #2 - The Missing Piece in The Financial Markets Machine
The only missing piece is what we don’t know!
What makes this barrier huge is the lack of proper knowledge of how this machine works. Some pieces of this knowledge had proven hard to be accepted.
You know that when one trader buys another one is selling, but that is not enough to understand how markets work. You need to go deeper.
The best tennis players know the pros & cons of the main types of courts, what is the tennis racket made of and so on. The best golf players know how each type of grass interacts with the ball and so on.
If you want to succeed in trading, learn how the financial markets machine works.
Accept that markets were not created for you and me to make money. They serve another purpose. We, as traders, are merely a part of this system.
For example, do you know how different markets participants trade? How pension funds, hedge funds, brokers, market makers, commercials, individual traders, banks, etc are making money? How they interact with each other? When they make money and when don’t?
Learn the structure of the financial markets machine. Discover its building blocks and pieces and what processes connect them. Thus you will clear a big hurdle and will reach the next level in your trading.
I have written a lesson about one key piece of the financial market machine. You can see it here.
Trading Barrier #3 - Everything is Changing! Are You?
Prices are changing. Stocks, Forex, Bonds, Commodities are changing. Futures and options are changing. Legislation and regulations are changing. Some trading products disappear, new products will be available for trading. Your trading buddies will stop trading. Brokers go bankrupt and so on.
I can continue with this forever. The message is clear:
In long-term everything will change.
You can’t stop it. But you can be prepared.
There is an elegant way to do that:
There are things you do every day like waking up, drinking coffee or tea, going to work, exercising, meeting with friends, family activities and so on. Try to do those things differently.
– wake up 5 minutes earlier.
– if usually, you go to work by car, change this and next time take public transport or just walk.
By breaking the routine of your every day’s activities you are teaching yourself to be open to changes. So next time when the market changes you won’t be thinking “this is the end of the world”. Instead, you’ll accept the change and will adapt to it.
Try it and let me know how do you handle changes.
Trading Barrier #4 - Learn to Trade by Avoiding this Mistake
Everything is possible but how probable it is?
Probabilities are those that matter. In trading everything is probabilities. And they have to be measured.
This is the next barrier that stands between you and success.
For example, how probable is for the market to find support at a certain level or to reach a target level. Which instrument is more probable to benefit from the soon to be released fundamental news.
This barrier comprises two things
- to know the importance of probabilities and that you should calculate them. That’s the easy one. And you already know it, congratulations!
- know how to calculate probabilities. Now, this is where it gets tough. Rarely you’ll be able to precisely calculate the probabilities. But no matter if we know the exact percentages or not, we have to be able to compare two or more scenarios. The purpose of this is to conclude which one has the highest probability to become reality.
The simplest example is choosing between two trading strategies or two traders. Let’s compare the trading strategies from the following table.
Which trading strategy you’ll prefer? How will you calculate the probabilities?
To choose one of those trading strategies most people will focus either on the percentage of winning trades or the average win vs average loss.
But is this how you judge one’s strategy?
Pick one. Strategy A or strategy B? Which one has a higher probability of success?
The answer is hidden between two barriers somewhere in this article. To find it, keep reading and learning the barriers which every trader faces.
What to do to overcome this barrier?
Start asking yourself the question “how probable is that…” or “which is more probable” for everything in your trading.
“I don’t know” is the answer which will suggest that you need to search for more information.
Trading Barrier #5 - The Illusion of Control in Trading
To become a better trader, you need to blast through that next barrier. It is the thinking you have control over something in trading.
We are all susceptible to this illusion. We think that we have full control over the risk of our portfolio or a position. We think we control how much we can lose or how big would be the returns, or that we’ll reach a certain per cent winners be and so on.
Until one day the black swan appears and we experience the tail risk.
Then we realise that some things in trading are more susceptible to control. Others are beyond our reach. But the truth we have to learn is that:
we don’t have 100% control over anything!
If you think that your stop loss puts you in control over your risk per trade I strongly advise you to reconsider this. Read (or recall) what happened when Lehman Brothers collapsed. Also, when the Swiss National Bank abandoned Swiss Frank’s ceiling. A weekend gap might be as devastating.
Still, I have to underline that having a stop-loss at least gives you some control over your loss. Maybe not 100% but way bigger than not having one.
What about the control over emotions? Continue reading and you will find more barriers on this.
Trading Barrier #6 - Successful Traders Know This
Your results differ from those of the successful trader you?
It is because you do not do the work needed to become this trader.
Most traders underestimate the amount of work needed to join the club of successful traders.
They are also not willing to do that work, always looking for the easy way. Most prefer to use only technical analysis. Completely avoiding the combination with the fundamental one. They also focus on quantitative instead of a qualitative approach.
They do not want to go one step further in doing the necessary work.
Imagine I give you one pattern and tell you this is the way to become a successful trader what would you do?
Some traders will never use it. Without understanding it, they’ll say that this is not the way for a trader to succeed. Others, again with no understanding of it, will immediately start trading with it.
Its usage might improve your results but the significant improvement will come from another place. From you putting the work to understand it, test it and by all means do the work to improve the pattern.
Part of this hard work is learning to trade.
Trading Barrier #7 - The Desire to Quit and to Close Your Trading Account
There are many activities in today’s life which constantly challenge our persistence and determination.
It can happen in our favourite sport for example. Martial arts, golf, tennis, football, basketball, you name it. It can also happen in work, our relationship with people, etc.
On times those activities seem so hard, even impossible to do. That makes us want to quit. We all have such moments when we are so desperate about the lack of progress or there is a barrier which is so hard to overcome that we just want to quit.
The same is with trading. Good trading results are hard to achieve. Distrust those who claim it is easy to be a successful trader. There are moments when it is extremely hard to continue. The market is beating you every way it can. You are facing a solid barrier and you just can’t see how to continue.
You feel tired, hopeless, scared,… and you want to quit and close the trading account!
I know because I’ve been there. Many times.
That is why I won’t say that you should not quit. Let’s be honest trading is not for everyone.
There are a lot of benefits, besides money, of being a trader. It is a good way for personal development. Trading will teach you many useful things. You will increase your mental power. You will use risk management in everything you do. Trading will teach you discipline. You will gain a better understanding of other businesses and many more.
But after a time you have to answer the question “is trading really for me?”
Only you can answer that.
If the answer is yes, don’t think you have removed that barrier. Sorry to bring the bad news but this is another hurdle that won’t disappear forever. Only temporarily. Later it will reappear to bother you again.
Learning to trade means learning to deal with the urge to pull the plug.
That’s just how it is!
Trading Barrier #8 - Did Your Bias Kill Your Last Trade?
Judge everything objectively without bias.
This is one barrier which can never be fully eliminated. You will have to struggle with it from time to time because as traders we are prone to be biased. And most probably it will be the case of the confirmation bias.
Dictionary.com explains the confirmations bias as follows:
This bias occurs when you blindly believe in one position or a market direction. It is so strong that you interpret everything in favour of those beliefs. If a piece of information is impossible to be interpreted according to your beliefs, you ignore it.
That could be very dangerous.
The confirmation bias also comes in various shapes and sizes. You should work to understand yours and try to handle it.
I will show you an example of how I dealt with my bullish bias for the US stock market.
The moment I am writing this, the US stock market is in the 10th year of its bull market.
You might say that it paid off to have bullish bias during such a big bull market. That’s correct but it can be very dangerous as well. Especially in times like 2015, 2016 or 2018 when you expect a huge up move but the stock market is falling.
To deal with my bias I’ve decided to listen to both perma-bulls and perma-bears. To do this, I needed to find the best representatives from both camps. And then to get their opinions regularly.
In such a way I could see the best arguments from both sides and balance them.
I can’t discuss here names but I was able to find good sources from both camps.
Some of them had free newsletters to which I’ve subscribed. Representatives from both camps were doing a lot of work. They were searching the internet to find the best arguments of why the US stock market will fall or rise.
As a subscriber, I had received quality arguments for both bullish and bearish scenarios. Those sources along with the results of my work gave me an opinion based on strong negative and strong positive biases.
Remember markets are going up and down. Having quality people who disagree with each other will give you a precious perspective.
Experiment with this and you’ll be one step ahead to minimize the effects of this barrier.
Trading Barrier #9 - Automated trading
Maybe not in the beginning but when you get deeper into trading, you will need automation.
There will be things which can easily be robotised. Like indicators or complex mathematical calculations. Automating them will bring benefits to your trading at least in a form of saved time.
I’ve found that automated trading is a big problem for traders. Here is what I get when asking them why it is such a problem:
- on which platform to make the automation – if you feel well with your current broker and its platform allows it then to do it there. Just be sure that the platform is reliable enough and won’t mislead you,
- I can’t do it myself. I am not a programmer. – Well, auto trading doesn’t require you to be a coding genius. Some tools can be found for free. Other you could do yourself. If not, find a person who can automate what you want.
- where to find a programmer – try freelance websites, there you can find coders for every platform.
- the programmer will steal my precious work – It is the same as the entrepreneurs worrying about that the venture capitalists will steal their idea. It is possible but how probable it is? They are programming a lot of stuff and usually don’t focus too much on one’s work. Unless you are Ray Dalio, Jim Simmons or Paul Tudor Jones, of course :). If you are that concerned with it don’t give all the work to one programmer give it to a few. You can avoid programmers who are also traders. You trading algorithm or simple automation of a process will be of no interest to somebody out of the trading universe.
- it will be expensive – Maybe it will be. That is why you have to weigh the cost against the benefits you’ll receive after they automate your trading.
A piece of advice to anyone who is considering automated trading. Don’t do it in full. Always leave some room for your personal decision.
Trading Barrier #10 - Stop! Don't Make It Perfect!
Do you want everything to be perfect?
But perfect things do not exist. Not in trading nor anywhere else.
Being a perfectionist is the last thing you want to be in trading.
Remember your stop-loss won’t be placed on the perfect level nor you’ll open a position at the best price.
You will never capture the whole move, there will always be a better exit. If you are winning the size of your position will always be smaller than you want.
If you are losing, you’ll always have bought/sold more contracts than you had to.
This can go on forever.
Just accept it.
You can always try to make the most of everything. That is the road to perfection. But don’t be hard on yourself when it doesn’t happen.
Don’t underestimate this one it can be a big barrier to your trading success.
Trading Barrier #11 - "I have the feeling that it is not real. It's manipulated, rigged"
Ahh, we all had that feeling from time to time 🙂
No matter what we are trading be it Bitcoin, Forex, stock market, or else thoughts of market manipulation are sneaking into our heads.
But is it true? Is the stock market rigged? Are the Forex and Crypto markets manipulated? Having in mind that every market regulator is focused on preventing this, then it is possible.
But maybe the better question is how significant it is to your trading results?
Let me tell you a secret:
So even if we assume that on some occasions (Barrier #2 explains that market can’t be manipulated all the time) manipulation is possible that doesn’t mean it is against you. It might even benefit you.
Power corrupts! Somebody will try to use the position of power in an attempt to manipulate different markets. So best is to accept it and learn how to protect yourself.
How to protect yourself from manipulation in the market you are trading?
- Try to find how you might get hit by a so-called manipulation. For example, don’t enter too crowded trades.
- Avoid stop hunting! If you don’t know how you can register for a FREE trial and learn how to avoid them.
- If you think your broker is manipulating the prices get out of there.
Some markets are harder to be manipulated than others. I’ve illustrated this in research. You can see it in Piece #M14
Trading Barrier #12 - How to draw trend lines? How to use Fibonacci retracement? How to identify support/resistance?
Trading is very strange, don’t you think?
Even the most simple, everyday activities like drawing a trend line, finding the support and resistance or using Fibonacci retracement might look hard to do!
That could be annoying. Sometimes the points where you draw the trend line or where you place the Fibonacci retracement are obvious. But on others, it is a nightmare.
You must understand that there are no set in stone rules here. I had personally taken part in a lot of debates on this topic. Wasted our time arguing on how to draw the right trend line or where exactly the Fibonacci retracement begins and ends.
But you know what?
It does not matter!
Don’t try to be perfect. Instead, try to minimize its importance in the overall trading process.
For example, if you are not sure where exactly are the support and resistance levels, think of them as a zone. A range which encompasses all the probable support or resistance levels. And when the market reaches that zone, don’t rush into buying or selling. Instead, use something that will confirm the signal. It could be price action pattern, candlestick pattern, oscillator, etc.
It is useful to look for a confluence of a few techniques. The support or resistance level you are looking for might be where the trend line meets the Fibonacci retracement level.
In such a way you are minimizing the effect of “not be able to draw the correct trend or support and resistance lines”.
Trading Barrier #13 - In-depth thinking like a chess grandmaster
A good trading tip is to look beyond your trading decision.
The great chess players don’t think in separate moves. They consider a line of moves. That line usually includes around eight moves ahead.
We, traders, must learn from them. And to realise that the position has not ended after we enter.
Look at how the best chess players think or check how a chess algorithm shows the best line of movement. Get that trading tip from a sport which has evolved for centuries.
The market is your opponent in this game. It will continue to move the pieces after you’ve opened a trading position. That is why it is better to visualize all the possible outcomes before and after you opened a position.
This way you will be mentally prepared for any surprises, improving your emotional stability. If you anticipate a move you are more likely to react correctly. That will minimize the possibility of reckless actions.
That trading tip is more applicable for daytraders or short-term traders.
Have in mind that expecting all the moves is hard in chess where you have limited variations. In trading it is impossible but identifying key situations could be done.
Trading Barrier #14 - Is there such a thing as too young or too old to trade?
Is this even a trading barrier? Maybe something that prevents you from making profits in trading?
I’ll let you decide
Trading Barrier #15 - The Drawdown
Every trading account has and will have drawdowns. They are shown as declines in the equity curve. Some are big some small. But will come a moment when the drawdown will be big. It will be so severe that an independent observer might think “this trader is lost”
A few examples:
– Warren Buffett’s Berkshire Hathaway records. There you will see a 48.7% decline in 1974. Wanna bet how many people thought back then that after such a big drawdown Mr Buffett is finished?
– During the World Cup Trading Championship in 1987, Larry Williams experienced a drawdown of over 60%. After such a steep decline in his results everybody “left the ship” except him. The same year no matter the drawdown was he won the championship with the stunning 11376%
This is what every single trader will experience at some moment of its trading career. Everyone had or will have such a huge drawdown.
You are lucky if you are reading this before you experienced any significant drawdown. Be warned and prepare.
The drawdown might not be a loss of trading capital. It might be related to a severe decline in your business. This is what Ray Dalio had experienced in the early 80s when he had lost almost everything.
Trading Barrier #16 - Whenever I open a position it immediately starts losing money (the market works against me)
Indeed, not a pleasant experience. But think about it for a moment:
Yes, this is true.
That is the only place where you can be sure that after entering the market will not go even a tick against you. That is if we don’t consider the spread.
The best traders out there constantly observe that “phenomenon” in their trading. Like you and me, they always see the minus sign first after they open a position.
But guess what, they’ve accepted it as a reality and are adapting to it.
They have realised that opening a position at the best price is impossible. Except for pure luck. That is why they don’t botter with attempts to do it.
Instead, they are aiming at a reasonable, achievable improvement of their entry prices. That is done by adopting different entry strategies. Those strategies include many entries per single position, options, and so on.
Trading Barrier #17 - Cut losses. Close the losing trades. Take care of your losses.
Years ago I’ve accepted to meet a trader who, I was told, was having big problems. I didn’t know what those problems were exactly but when I met the person I’ve instantly recognized the symptoms.
The man in front of me was a total wreck! Both physically and mentally.
With tears in his eyes, he began to tell his story. How he had shorted DAX, Dow and NASDAQ from levels far below the current market’s price. With no STOP-LOSS ORDER. And currently, he was sitting on a 5-digit loss.
What made it even worse was the fact that this 5 digit loss meant a loss of all his savings.
And there is more. Every day he was between hope and despair.
“Will the market return or not?”
All this tress had worsened his relationship with his wife, with his kids and friends. He could not do or think of anything else besides his losing trade.
Day and night he was just sitting and watching how the market was eating his hard-earned money!
All this happened because he didn’t close a losing trade. He didn’t accept that he was wrong and didn’t place a stop-loss order. He didn’t cut his losses letting them grew big enough to destroy him.
I don’t know how to emphasize this enough but please understand:
That is a huge barrier. A barrier which unfortunately cannot be eliminated once and for all. This is something which like a predator will stalk you from the shadows. And the moment you are most vulnerable it will strike you down.
Don’t let the fear of being wrong, your ego, your winning streak or anything else to keep you from doing what’s necessary – place the stop-loss order, close the losing trade manually, hedge it somehow… take care of that losing trade because this is the only way to succeed in trading!
Trading Barrier #18 - The stop-loss order is running away from the price
If that is your current barrier you are probably very much aware of it.
Shortly, it means that when the market moves closer, you move your stop-loss order. What was supposed to be a hard stop is now becoming a floating stop-loss order. But unlike a trailing stop which protects profit this one only increases your potential loss.
Sometimes it might be necessary to move your stop-loss more into the negative territory to correct a mistake in the initial placement. However, be sure that there is such a mistake and it is not about you being afraid to take a loss. Don’t allow it to transform into barrier #17 “Cut your losses. Close the losing trades. Take care of your losses.”
Usually, the reason behind it is that you are unsure of your stop-loss level. You think it is not the right one. Or that the market will stop at another level above or below (depending on the position), hitting your stop and then will move back in your direction.
If you are moving the stop-loss or you plan to do it, please consider:
- moving your stop-loss order away from the price means increasing your potential loss. That immediately worsens your risk-reward ratio. Think twice is it worth doing so?
- being into a trading position is not the time to make such conclusions like “my stop-loss is at the wrong place. I have to change it”. While it might be true on some occasions but on a lot more your emotions will play “tricks on you”. Makes you think there is something wrong with your stop-loss level while the whole position might be wrong.
- do your work and create an exit strategy. Prove that exit rules with backtesting. Thus you will believe and respect them. That is the way to turn a run-away stop-loss order into a real hard stop.
Trading Barrier #19 - Can't take the trade!
So, you are afraid to open a position! Afraid that your next move will lead to a losing trade. Don’t worry, everybody is scared.
Because of an unpleasant event (a loss) in the past, not necessarily connected with trading, you are so afraid that you can’t open a position. You are numb with fear.
Usually, such a trader thinks of 1000 things why the next trade won’t be profitable. Thus they are convincing themselves out of the trade.
It will help if you can identify that unpleasant experience from the past. If it is something outside of trading, seek professional help. I can’t help with that.
If it is a trading-related fear, then most probably it is because of a huge loss (again that barrier #17) or a prolonged losing streak. Such things make you doubt your trading abilities.
First, think about why it happens? What went wrong? Then change your strategy. If you don’t make a change everything will stay the same! Discuss the problem and those changes with your trading buddy, colleague or mentor.
After you identified the reason behind the big loss or the losing streak make changes to avoid them in the future. Then you can start again.
Lower your risk in the beginning. This will decrease the emotional pressure.
Integrate a specific trigger. Something very specific which without a doubt will signal buy or sell. Like if A<B then A>=B → Buy
If possible automate that trigger thus you won’t need to press the button
I am afraid that no matter how hard you try to learn trading, how many courses, books, lessons you have taken without overcoming this barrier all will be a waste of time and money.
Spread the Word
If you like it so far share it with your friends. Help them learn about their own barriers. You will bring tremendous improvement in their trading life!
Trading Barrier #20 - Can't let trading profits grow!
Very common barrier.
Many traders take small profits the moment they see them. I know It is very tempting and feels like somebody is giving you a gift. But you have to resist.
Realise that you can’t make big money if you are closing the moment you see the + sign. Especially if this profit is smaller than the potential loss. A big part of the learn to trade process is to hold your trading gains. That differentiates professionals from retail traders.
The roots of this problem may lie everywhere. You might be afraid that the market will reverse and you will lose even the small trading profit you had. Or you are trading with a significant part of your account which could turn small market fluctuations into big trading profits. Or it might be something else.
How to overcome it?
Lower your risk if you are risking too much.
Creating an exit strategy will help. Think of a target and an exit signal (if the target is not reached, but the market is reversing). Hard stop-loss is absolutely necessary.
You can also try how a trailing stop will influence your profits. Just make sure you are not changing the closing of small profits with a very tight trailing stop. It will make no difference.
After that, backtest this strategy to see how it performed in the past with your current entry rules. Good backtesting results will increase your belief in the exit part.
A rule-base exit might help you gain bigger profits.
Trading Barrier #21 - Get used to broker fees, platform charges, etc.
There is a cost to be a trader.
Charges such as spread, swaps/rollover, commissions, platform fees, data fees, etc. will take money out of your pocket.
Some traders can’t accept that brokers, platforms or exchanges have commissions. They don’t want to pay them. They are constantly searching for more favourable trading conditions. Only to end with some counterparties who are cheaters the least.
Others, trading certain products on a certain trading platform soon realise that the costs of trading are eating their equity very fast. The platform charges may include monthly fees, data fees, indicators fees and so on. If you want to benefit from the platform or the special trading products it offers you have to pay.
Carefully calculate how much it will cost both monthly and yearly to trade. Search for alternatives but be careful. Then make sure that at least for one year your ability to trade won’t be impaired by those costs.
It may sound funny but traders who learned how to trade were forced out of the business because of the inability to cover brokerage and platform fees.
Competing with trading costs is not a good idea because they are fixed while your profits are not.
Trading Barrier #22 - Learn to be patient in trading!
Learning to trade requires the development of many qualities which will also help you in other areas of your life.
Patience is one of them.
We all want to see the results of our trading faster but that is not what trading is all about.
If you want to be a successful trader, you have to accept this.
Wait patiently for the right setup, for the right entry. Wait for the market to make a move in your direction and hit your target. And then again a setup, entry, exit. Again waiting.
As they say “patience is a virtue”
For the best illustration for how important is patience see Warren Buffett’s wealth chart.
I’ve developed a simple test for you to see how patient you are. You can access it here.
Trading Barrier #23 - Position sizing!
“You will never have too many contracts when you are winning and you will always have too many when you are losing” – Larry Williams
Ahh, just accept it.
But is there such a thing as the right size for your position?
This is a very complicated problem and the boundaries of this article do not allow me to get into details. For more insights, you should definitely check the pieces.
However, here are a few things for you to consider:
- study the barriers explained here some of them are related to position sizing.
- how do you feel when risking 1%, 2%, 5% of your account, or more? How is this feeling changing with the increasing of your account size? Is it possible that you have a personal limit on how much you can risk?
- how experienced are you? All else excluded being more experienced means trading bigger accounts and taking a larger risk.
- what is the backtest of your strategy or your track record showing? After a certain percentage of risk, a profitable strategy might collapse and turn into a losing one.
Answers to the above questions will give you a clue about how to determine the correct size of your position.
To master trading, one needs to master position sizing. So here are a few tips for you:
- start your position by risking a smaller amount then build-up.
- increase the number of lots/contracts/shares of your position with the increase of your equity. Make sure your trading strategy can handle it.
- decrease the number of lots/contracts/shares when losing.
- a good piece of advice is to divide an equal amount for all your positions (at least in the beginning).
- risking 3% per trade on 10 highly correlated instruments means that you are risking 30% per trade.
A good example is being long EURUSD, long GBPUSD, Short USDCAD, Short USDJPY, Long AUDUSD, etc at the same time. Or being long CVX and XOM. Being short on SP500, Russell 2000, Nasdaq100 and DJIA at the same time is also a good example.
By doing that you might think “everything from a risk perspective is OK because I am risking 4% per position“. But by being short four of the major US indices at the same time you are rising not 4% but 16% of your capital.
- What about not correlated trades? Correlation is a strange thing. It might fall apart or be created. It is not rare to see non-correlated instruments to become correlated after a central bank move for example. Be aware of that. For a short time, non-correlated positions might turn into correlated. Thus your risk doubles.
To learn how to trade you will have to learn position sizing.
Trading Barrier #24 - Other traders influence your trading decisions
That is very common among traders.
You might be part of different trading groups, social networks, trading forums or a trading office. Inside those places, some traders might influence your trading decisions.
A manifestation of such influence is the pressure to trade which traders feel in those places:
“C’mon buddy. Don’t miss that big opportunity. It’s an easy one. Let’s make some money”
It might sound easy to resist but it is not. Those people can put real pressure on you and before you know it they might change your perception. Then lure you into some trades which you won’t take in other circumstances.
In trading, you have to be an independent thinker first. That does not mean to not listen to anybody but you have to be objective (Barrier #8 Did Your Bias Kill Your Last Trade?) and to be able to defend your view.
This is a trading lesson to be learned. Also, a lesson which to remember the next time when we find ourselves in a group of traders where everyone is trying to push forward his or her opinion.
Trading Barrier #25 - Overconfidence in trading
Another barrier which cannot be eliminated once and for all is overconfidence.
You made a few winning trades or learned/discovered something new, a forecast which came true and the wind of the overconfidence will take you away.
But that is dangerous. It might cloud your judgment and you can easily fell prey to some other barriers discussed here.
For example, overconfidence might lead you to risk more than you should. You can picture what will come next.
We can learn a big trading lesson from the books of some of the best in the industry. For example, reading Larry Williams and Ray Dalio you find that they are very cautious about overconfidence.
“Principle 11.1: If you’re not worried, you need to worry—and if you’re worried, you don’t need to worry. “ from “Principles” by Ray Dalio
They prefer to accept that they will be wrong and the next trade will be a big loser. Then they act accordingly to protect themselves.
So the best you can do is to prepare yourself because I won’t lie to you, you will experience overconfidence. It is imminent. But stay with both feet on the ground. Don’t let it cloud your judgement.
Trading Barrier #26 - Find your trading style
Learning to trade process will take you through many trading styles.
But what is a trading style? The word “style” can be defined as “A particular procedure by which something is done; a manner or way“.
That can explain a “trading style” as someone’s way of trading or the usual way to approach a situation in trading.
Following this definition, you will be right to conclude that there are a lot of trading styles.
But let discuss something very important! Many times I hear “I don’t like this”, “this is not my trading style” or “it doesn’t fit my trading style”
You have to realise that:
In other words, what you like might not make you money.
Don’t be naïve to think that what you like or feel is good for you is OK in trading. Scalping EURUSD with your precious combination of two technical indicators won’t bring you prosperity in trading.
I have put a lot of efforts to create pieces on how to improve trading results without changing one’s trading style (Try this new educational system for FREE) but everything has a limit. Some popular trading styles are just a recipe for disaster.
You are putting yourself a limit when avoiding to use what you don’t like.
Start the process of finding your trading style by finding yourself first:
- Try scalping, day trading, short-term, swing, long-term trading.
- Try trend trading and reversion to the mean (range) trading.
- Try only indicators, then only price action, then a combination of both
- Try fundamental and technical analysis
Do all this on the demo/sim/paper trading account. It will help you get the feeling. Write about how you feel when trying different stuff. You will notice that you feel better with some of the methods. Write them down.
Now you have a trading style. Just don’t get too attached to it 🙂
Trading styles change with time but principles stay the same.
Later in this guide, you’ll find a barrier related to trading principles.
Trading Barrier #27 - Find a trading strategy
After you have found what resonates with you i.e. your trading style, now it’s time to find a trading strategy.
One way of doing is to search for successful traders whose trading style is like yours. Try to learn what trading strategies they use.
For example, if you like futures and short-term trading but don’t like indicators then price action trading strategy may be right for you. Search for such strategies or a person who is using price action methods.
It can be that fundamental analysis fits your style along with long-term investing in stocks. Then see who is using such trading methods. Warren Buffett would be a good start 🙂
You can search for different strategies and then use the right one at the right time. This is similar to a quant hedge fund.
Be aware that some traders and trading strategies look polished and professional. They have fancy names and loud promises. But those might not make money at all. While others look the opposite but they work.
If you find such a person or a trading strategy, that’s great.
If not, see what you can borrow from them. Replace parts of their strategy with some things you feel good with.
If you want to learn trading you have to study many trading strategies.
The best trading strategy would be the one which gives good results during backtest and you can understand its logic. The latter is not mandatory. Because the understanding of the logic might come later, after a certain period of usage.
Please note that the dollar-cost averaging is excluded from this barrier. Dollar-cost averaging is a popular strategy for stock trading. It is a form of averaging down strategy. It is considered suitable for people who know nothing about the market and don’t want to learn how to trade.
We should also exclude the case of building a position. It includes controlled entries with pre-defined amounts on worse prices (compared to your initial entry price). This averaging down is done until a certain level is reached. The purpose of doing this form of average down is to achieve a better price and/or to accumulate a bigger position.
If you want to learn trading familiarize yourself with those cases of averaging down.
All that’s left is the bad averaging down. Please don’t do it.
Adding more lots/contracts/shares to your position when the market is roaring against you is a recipe for disaster. If you think you will avoid loses in such a way, I strongly advise you to think again.
There is a good story on this topic.
Years ago a friend of mine asked me to help a group of traders who were managing a pool of money. Some of those guys were brilliant analysts but there was a big problem in their trading plan. They thought they could avoid losses. How by averaging down and locking (MT4/5 fans know best).
Everything went well until one day they one position got out of control. My advice to them to close the position immediately was disregarded, and the fight began.
For months they were trying to turn this position on profit. They did quite well for a time. But in the end that averaging down made their position too big and too far from the average price. And the trend crushed them!
This is not something that happens very rarely. I could write a book if I combine all the cases I saw of unsuccessful averaging down.
No one in the trading education world should ever suggest this.
This is a big trading lesson. So the next time you decide on taking such an approach, remember this story.
If a friend of yours is considering doing such “easy trading” send him this guide.
Trading Barrier #29 - Seeing things that are not there
This is something we all do.
We all see things on the chart, in the news, in companies or government reports that are not there.
Technical analysts experience this more than anyone else. Look at the painting below.
Shortly after the Great Recession ended, I went to a famous artist and asked him if he could draw me a recession. The result is what you can see above. I am not telling you this to brag what a painting I have but to show you something.
In this painting, there is a hidden symbolism. We worked together (me thinking; he drawing) to hide different symbols in the painting. Some are easy to find, while other – really hard. Those symbols are connected with trading. The most important symbol of them all is the one representing the recession.
After the painting was ready, I’ve shown it to many traders and asked them if they can find all the symbols inside.
Nobody could find all the symbols but something strange happened. They’ve found symbols, lots of them, which neither I nor the artist had put into the painting 🙂
How’s that possible?
Some of the newly found symbols appeared to be real and deliberately put into the painting. But they just happened by chance (like the windows, no more clues 🙂 ). Others were completely made-up by those analyzing the painting. Like the head and shoulders pattern, some of them saw.
Can you see such a chart pattern in the painting?
Most of the people were seeing things which were not there!
The same is true in trading. Especially with chart analysis. When we look for chart patterns, we’ll see things that are not there.
The bad news
You can never fully eliminate this barrier. You will always see things which are not there!
Are you a technical analyst? Click on the painting for a larger version and let’s see what will you find 🙂
Trading Barrier #30 - Locking/hedging trading position
“If the market goes against me, no problem, I’ll just lock my trading position (i.e. open the same trade in the opposite direction) then on a better level will close one of them and let the other gain.”
Sounds familiar? It does if you are a retail trader using Metatrader 4/5 or some other platform which allows locking.
It is similar to the Trading Barrier #28 – Averaging down. It is based on the false belief that you could avoid losing trades by locking them and then slowly eliminate that loss.
That is an illusion! And certainly not an answer to the “how to trade” question. You must understand this to overcome this barrier.
But why it is an illusion?
It sounds very logical. Lock the trade and on the next support or resistance level close one of the trades and let the other gain. Then if necessary lock again. When the next support/resistance level is reached repeat the unlocking of those trading positions.
Here is another story for you.
I’ve tried this in my early years as a trader. I was told it was an easy game. ”You won’t have losing trades,” that person told me. So I’ve decided to try it.
A trade of mine was approaching the stop-loss level. I decided to not close the position but rather lock it or hedge it as this action is sometimes wrongfully called.
The moment I hedged with an opposite position my nightmare began. For one month I was not doing anything else besides trying to get rid of this loss. I made a lot of trades. Locking and unlocking. The size of the loss was increasing and decreasing. Increasing and decreasing. I was totally frustrated. After one month I was able to close that position in full.
Yeah, I’ve done it. I am the best trader… or maybe not?
Consider the following:
- I’ve spent one month with only one position which was wrong initially and stayed wrong till the end. Yes, during that month the chart had never returned to my original entry price.
- guessing a place, where to unlock your positions is even harder than finding a new trade.
- I missed a lot of good opportunities in other instruments. Those opportunities would have brought me a lot more money compared to the loss I was so stupid to try to get rid off.
- my emotional balance was no longer present. You have no idea how a locked position affects you mentally.
- at moments I could clearly see that one wrong step and the loss will increase beyond my/anyone’s abilities to save it. And then… boom margin call.
- with all those efforts do you know how much profit I made with this locked position? Null, nothing. The moment it hit 0 I’ve closed everything because I could not wait for it to make some profit.
So that exercise cost me my emotional balance and a lot of missed opportunities only to gain nothing. Not something the best trader would ever do, right?
Since then I have never done such stupidity again.
I suggest you do the same. When the time comes, close the trade and move on. Period.
Trading Barrier #31 - Impulsive trading
Impulse or impulsive trading is a serious barrier standing in front of all us. Everything looks like a great opportunity. We just can’t sit down and wait.
We want to open the next trading position as soon as possible. We know that there has to be a setup and then a trigger but why wait when we can enter now at this very moment. And make an even bigger profit.
That leads to barrier #29 “Seeing things that are not there” and also to losing a certain amount of money.
But why this happens?
- Some people are naturally like this. They just can’t sit without doing something. I know many traders who open another account with a small deposit so they can trade there “small positions, just to have fun.“ Here is an impulse trading.
- others are obsessed with becoming rich faster. To do that they try to catch every single market move. Impulsive trading is making those traders extremely reactive to the market. That could lead to barrier #33 “Overtrading”
- Impulsive trading might occur because of chart hypnosis. Many of us are constantly hypnotised by the chart’s movements. We know we have to wait for a setup and then to look for entry. But every single tick of the chart is hypnotising us. And the more we stare into the screen the more we see perfect trades.
Entry is not the only part infected by impulsive trading. Because of the same reasons, traders are often closing their positions premature. Before the market had any chance to reach their target.
Impulsive trading can lead to lots of bad entries and wrongfully closed trades.
“Only the fools wait. Act now. Be proactive.” This is how we were taught, right? In the university, in the company, we work for, etc? It is like somebody is pushing you to be impulsive in your trading.
Being proactive in trading is not a good idea. To learn to trade first learn how to sit on your hands.
You must not spend most of your time devoted to trading in front of the terminal watching how the chart is moving. Rather, that time must be spent on learning how to trade and finding new trading ideas. And that will help you eliminate impulse trading.
Trading Barrier #32 - Panic attack after a trading position is opened.
This one is pretty straightforward. After the order is filled you experience a panic attack. A lot of things might lead to this but do not worry. If you experience such an attack try to remain calm and focus your attention to check if you missed something.
Double-check the position’s size, the exit orders. Was there a real reason to enter…
Checking all this will calm you down.
If you didn’t find an error, and the discomfort is still present move away from the screen. Switch your attention to something else. Start exercising.
What’s done is done. If everything is according to your rules and you have a hard stop in place, there is no need for you to stare into the screen. Give the market some room to do its move.
If you continue to stare at the position, the situation might escalate into trading chaos.
Panic attacks happen no matter how much knowledge you have accumulated or how experienced you are.
Trading Barrier #33 - Overtrading
There are only three ways to quickly lose all your money:
- irrational position sizing (risking too much),
- no hard stop (the trend will destroy you)
Traders often mistakenly believe that to win big they have to trade a lot. Nothing can be further from the truth. Trying to catch every single market move, even the smallest one, will put you into the trap of overtrading.
But what exactly is overtrading?
Overtrading occurs when too many consecutive transactions are made in a single instrument over a short period, driven by emotions.
Trying to make a lot of money, traders try to catch every single blink in the markets during the day. Thus they are making too many trades. That leads to a significant increase in paid spreads and commissions. Paying those charges will decrease your profits.
Worst is that most of the trades made in such overtrading periods are purely emotional. There is no rationale behind them.
To be a successful trader, you need to focus more on quality and less on quantity.
But what about the high-frequency trading, is this overtrading?
There are market participants who make a huge amount of trades like the HFT companies or quant hedge funds. However, their trading differs from the overtrading definition above.
High-frequency traders are exploiting an advantage over other market participants. This is their speed and ability to front-run others. Their trades are not emotional or in only one instrument.
Quant hedge funds like Medallion or World Quant can have thousands of trades per day. But those trades are in numerous stock and commodities initiated from many algorithms.
Learning to trade means learning to deal with overtrading
Understand that profiting by many trades is possible only on special occasions. For example in days with extremely high volatility. And those days are rare. If you look at market returns distribution chart, you will quickly notice that there are only a few days in any year when trading lots of positions were possible. Such days occur less than 20% of the time. Even in those high volatility days making many trades is not recommended.
If you can recognize it, you can control it.
If you are making many trades per day, in a few instruments then you are overtrading. To control overtrading, you need to be more selective. Adding additional filters will help. Getting out of the 1-minute chart will also help.
Remember this is totally in your control. By saying NO to overtrading, you are saying YES to selective, productive and successful trading.
Trading Barrier #34 - Struggle to get at least 1:1 Risk Reward ratio
We all enter a position with big dreams of it.
We calculate the stop-loss level and setting the target for a larger profit.
We aim at 2:1, 3:1 or even higher Risk Reward ratio. But after the trade is executed we realise that the market move was shorter than we were expecting it to be. Or we can’t hold the position open for that long.
This way we didn’t wait for the target level and didn’t get the full profit.
But in the opposite case, we are always waiting for the stop-loss to be reached, taking the full loss.
All that leads to a bad risk-reward ratio.
Maintaining at least 1:1 means that your win would be at least the same as the risk. That is crucial to your trading success. Researches show that it is more probable to become a successful trader if you can maintain better than 1:1 risk-reward ratio.
The higher the average profit is compared to the average loss the better.
That barrier is connected to some previously discussed barriers, like #17, #18, and #20.
But the problem might lie elsewhere. It might be because of the rules of your strategy, the market or else. That is why I would suggest you go and look into the pieces. Some of them are precisely focusing on how to maintain at least 1:1 average risk-reward ratio. You can learn for free with our 3-Day Trial.
Don’t underestimate this barrier.
You will be amazed how quickly your account balance will grow if what you are receiving from a winning position is equal or bigger than what you give back in a losing one.
A quick note. To learn to trade also means to learn setups with worse than 1:1 risk-reward ratio. In those cases, the advantage comes from the higher probability that those setups will lead to winning trades.
Trading Barrier #35 - Find a Broker
So far in my career as a trader, one of my brokers declared bankruptcy, and another was very close.
Everybody underestimates this barrier. At least until major events like the Great Recession or the Swiss National Bank’s ceiling abandonment occur. Then we all are waiting to see if the brokerage company we are using will survive the debacle.
First, you need to know what you will trade. Then search for a broker.
Your broker company must be with a good reputation. Don’t listen to what they say, try to find what they are doing. Deeds matter, not words.
You need a broker in good regulation. You don’t need brokers “regulated” only off-shore or not regulated at all.
Your broker must be well-capitalized. Your deposit is protected to some extent by the local legislations. You have to check the size of the protected amount. However, having your money blocked for a few months is something you do not want to experience.
When the money in your account is growing think for broker diversification. For example trade stocks with one broker. For futures and options choose another one. Crypto and fiat currencies trade with a third and so on.
Good trading education is worthless if it doesn’t explain how to protect the money you work so hard to make.
That is why I’d suggest you include another level of security. Trade exchange-traded products when possible. First, you have a stable broker. Then you are trading products which a reputable exchange guarantees.
Might look like not so important but believe me it is.
Trading Barrier #36 - How to learn trading if you are just starting?
Take a piece of advice from a person who spent more than $100,000 on trading education.
If you are just starting you better find a free course (on the internet, or ask your broker) and learn the basics of trading. Learn what is a trendline, how to use the most popular indicators, what is ISM, GDP, P/E and so on.
Make it clear to those who offer you those courses that you want to learn only the basics. You don’t want them to show you how to use this knowledge in trading.
That is very important because if the wrong person is showing you how to trade it might end badly for your account. It will also hurt your future development.
When you’ve learned the basics go back to barriers #26 and #27 and find what are you drawn to. If you are like me, you will think that you like everything. But go deeper and you will find that some techniques feel closer to you. For me, it was price action trading which led me to Larry Williams
After you find your style and a person who is practising this don’t rush in to buy their trading courses. Start with a book, free articles or blog posts which he or she has written. See, if what that person is talking about resonates with you.
As the former US president Ronald Reagan had said: “Trust but verify”. Many educators are presenting approaches which look good on the chart but when you use them, they just don’t work.
After you’ve found an honest person, who knows what to do and whose methods resonate with you, you can move forward with his/her courses. Ask for mentorship and so on.
Trading Barrier #37 - Don't stop learning!
One book, one course or even one mentor doesn’t mean you are done learning how to trade. In trading as in all areas of life learning should never stop. The market is constantly evolving, so should you.
And here we are facing the next barrier of how to ensure a continuous flow of knowledge? After a few years spent trading you feel stuck, or worse, you feel you already know everything. Don’t fall into that trap.
Know your weaknesses, learn your barriers.
Try to overcome them by being fully open-minded. Search for new approaches. Read more. In time you will realise that you’ve become better in putting the pieces together to build an even better strategy.
In that piece, I am sharing an easy way of how to learn quality trading lessons for free. –>> Piece or email course
Trading Barrier #38 - Is your trading scalable?
Is your trading strategy sustainable?
The best test is to think about what will happen with its performance if you increase the money you are trading with.
You have no idea how many trading methods fail in this test.
It is very common for the retail traders to trade in a way possible only with a tiny account. With micro-lots, binary options and so on.
The moment they increase the size of their positions and everything crashes.
Aim at increasing your trading knowledge. But focus on those things which won’t break when the account size increases.
End of First Half!
Congratulations! You’ve reached the midpoint of this guide. Your persistence is something you should be proud of! That is the way to learn to trade.
If you haven’t done it already maybe now is the time to make some notes in the checklist. If you haven’t downloaded it yet, click on the button below.
Enjoy the rest of the barriers!
Trading Barrier #39 - Missed trades
I will be the first one to admit that I’ve missed a lot of trades.
And will do in the future. Because individual traders can’t eliminate in-full. Pro’s have the same problem. But they have software and people who are looking over their shoulder minimizing the risk of missing a trade.
There are three ways to miss a trade:
- You were afraid to enter. This was discussed in barrier #19 “Can’t take the trade!”
- You were not paying attention, forgot about it or couldn’t take the trade.
In a professional environment, this is almost impossible to happen. But if you are like most traders you have another job or taking care of other things during the day. With so much side activities it easy to forget about a setup which you were supposed to watch carefully. Another possibility is that you might not be able to take the trade!
Let me give you an example. The time to get your kids from school is approaching as is your entry signal. You calculate that there is a small chance for the signal to appear in the next hour and you hurry to get your kids.
While you were travelling, the market reached a few cents from your limit order (if you didn’t forget to place such order). After that quickly moved in the opposite, your desired direction. If you were in front of the trading platform, you could have entered manually but you are sitting in your car in the traffic jam.
Another example is if you forgot about a trade. Yes, it is possible. Especially when you trade a lot of instruments. You might completely forget about a trading opportunity. Of course, this turns out to be the biggest market move you’ve ever seen 🙂
- the third option is when nothing form your trading arsenal gives entry signal. But the move suggested by the setup happened. Well, it happens. The best is to study that situation. See if you can come up with an improvement of your signals.
How to deal with that. How to not miss trades?
You can’t in-full. But still some things might improve your situation:
- Develop processes to minimize that risk
- Keep a journal.
- Automate your signals
- Use price alerts
- Minimize distractions.
A missed trade can be quite unpleasant.
But let me remind you that in most cases the best signal is not the first one. So be patient. There might be a better entry point.
Trading Barrier #40 - Survive a losing streak
Seasoned traders know that trading comes in the form of winning and losing streaks.
Market constantly changes. Every time it does your strategy will get in or out of sync with the instrument you are trading. Or it might be the worst-case scenario where something is wrong with your strategy.
This barrier is focused on the losing streak. It happens when you or your algorithm register a large number of losses coming one after another.
It is crucial to find the nature of this bad streak. Is it because of market reasons or flaws in your strategy or something is wrong with your ability to analyse the market?
Until you find the reason behind the losing streak, it is better to downsize your positions. Don’t increase the position size or number of trades during a losing streak! You want to make some money fast to cover the loses but that would be a wrong decision.
Losing streaks happen to everyone. Working on them will increase your trading knowledge. It will also improve your overall trading process.
Trading Barrier #41 - Survive a winning streak
Hooray! Winning streaks do happen.
Just imagine 20 or more consecutive winning trades… wow! What can we wish more?
Winning streaks can happen to everyone. But be careful with them. Such hot streaks could lead you to an overconfidence state and you may start thinking you can do everything.
I have seen how winning streaks destroy traders.
A good example is a trader who turned his initial 5000 EUR into 130,000 EUR in one week. At the end of those seven days, he was convinced that God is sitting next to him helping him to trade better.
Usually after such winning streaks, the pride comes and as they say “pride comes right before the fall”
This is what happened with this trader who lost those 130K in the next few days.
Don’t underestimate this barrier. Learning how to deal with winning streaks is very important.
Approach the situation like in a losing streak. Don’t be quick on increasing the size or the number of your trades. Try to find why those consecutive winning trades happen. Only this time you want to know this so you can extend it as long as possible and make it happen again.
Trading Barrier #42 - The best trading instrument
Traders often think that all trading instruments are equal. That is far from the truth. Forex pairs are different from the Commodities, which are different from stocks and cryptocurrencies.
How trading instruments differ from each other?
Let’s begin with the unquantifiable.
After trading for a while you develop something like a feeling for some of the instruments. I do not mean that the Force guide your trading. But you feel better when trading certain instruments. You seem to understand them better than others.
Want something quantifiable? Check this:
- some trading instruments are more directional, others are more mean-reverting. That could be the difference between normal and a very good risk-reward ratio.
- some are more volatile, others not. Short-term and daytraders need volatility.
- other trading instruments are backed by a significant amount of resources. Those resources will help you make better trading decisions.
My research suggests that there is a single best instrument. That instrument is available on every trading platform. It is a recommended place to start trading if you are newbie or after a significant drawdown.
Trading Barrier #43 - The best trading indicator
“Which indicator is best to use? Is it MACD, RSI or some fundamental indicator? What about Ichimoku?”
This is a question I often get. Some trading indicators are better than the others. That is true. But there isn’t one almighty indicator which will solve all your trading problems.
First, you must decide what do you need a trading indicator for? Trend or range? Are looking for a trigger? A way to compare two instruments? To find how much the market is stretched at the moment? Or something else?
Every trading indicator provides something specific. So if you know what information you’d like to receive you will find the right indicator for you.
My futures trading process involves the usage of 29 different indicators. Both technical and fundamental. Every single one of those is providing specific information. It is rare to have all them showing something. But depending on the situation, different indicators provide useful information.
Decide on what you need first then search for an indicator which can give you that.
Trading Barrier #44 - The Fundamental analysis and why it is so hard to use
18 years ago, when I started my trading journey every single trading course, out there included a module on fundamental analysis. During the years I’ve seen how fundamental analysis was more and more ignored. Courses started to focus only on technical analysis.
Now comes the interesting part:
It doesn’t matter if the fundamental analysis is being taught or not because traders won’t use it, anyway!
But why fundamental analysis is being avoided so much?
Because it requires more work.
With technical analysis, you can open a chart, draw trend lines, attach trading indicators and have a trading idea in the next 10-15 minutes.
Try to prepare a fundamental analysis in the next 15 minutes. I bet you can’t.
And there is more.
Technical analysis is almost 100% the same no matter what you’ve applied it on. Stocks, Forex pairs, commodities, cryptocurrencies it doesn’t matter.
On the other hand, trading with fundamentals differs from market to market. This means that if you want to start trading a new asset class you have to learn its fundamentals.
Another reason is that it is easy to backtest trading strategies based on technical analysis. You can quickly check where a certain combination of technical indicators might lead you.
Backtesting a strategy based on fundamental analysis is hard to do. For many retail traders, it is close impossible. They don’t know how to include fundamental analysis in their strategies. Also most popular trading platforms do not offer build-in functionality to test fundamentals data.
So, you better learn it and start using it.
Trading Barrier #45 - Not enough capital. Not enough money for trading
A huge barrier for retail traders. I’ve begun my trading with $800. And that is a really small amount.
With the evolution of CFDs (micro-lots, nano lots, cent accounts, etc) you can start trading with an even lower amount. But your costs will be higher. Have you tried to trade CFD on Corn or Wheat or other not that popular trading instrument? The spread can be bigger than the average daily range!
But why do you need to trade those?
Good trading opportunities occur rarely. They do not appear only in Forex pairs (the lowest required trading capital to open an account). Good trading opportunities are showing in different instruments at different times. Being able to trade many instruments is a big step towards trading success.
But that is possible with bigger accounts.
I understand, that you want to start with a small amount first, but I would advise you against doing so. Better is to save more money and then begin with trading.
But, if you do it and start with less than $1000, I suggest you focus only on the best instrument described in barrier #42 The best trading instrument.
Trading Barrier #46 - Too much trading capital may worsen your performance. Can kill a newbie. Big accounts require a team.
We’ve already learned that starting with not enough trading money is a problem.
What about if you have too much trading cash?
You might wonder how can this be a problem?
It is a problem if you have just started
You don’t know if you can handle such strong emotions. I’ve seen people who pretend to be great traders. But after funded with big trading money they face the need to open trades of significant size and… they froze.
There is a huge difference in trading with 10K, 100K and 1M.
Too much trading capital can kill a newbie. It will also decrease the performance of a seasoned trader.
Trading Barrier #47 - Lack of focus or too many distractions
Your typical trading day should consist mostly of researching trading ideas and learning how to trade.
But there will be a moment when focus is needed. When analysing existing trades, looking for new trades or placing orders.
I call it the moment of focus because this is when the focus is crucial to have. You have to eliminate the distractions and focus only on the task at hand.
Easily said than done, right?
It seems that your spouse, kids, friends, neighbours, colleagues, your boss, clients and everybody else in the world were waiting exactly for this moment, to distract you with something 🙂
It is very important to keep your focus at those moments. If not, it may cost you money and emotional stability.
A good piece of advice is, if possible, to schedule that moment of focus at a specific time of the day. When those distractions are limited.
Trading Barrier #48 - Can't generate trading ideas. Not enough trading ideas
Making money in trading is closely connected with your ability to generate quality trading ideas.
It is a numbers game in which more quality trade ideas will lead to more good trades. That would bring more money into your pocket.
But it is difficult!
This is one of the biggest barriers for all us. Worst, it is impossible to get over it once and for all. Finding trading ideas able to produce good trades is and will always be a challenge to all traders.
In the beginning, you will struggle to find even one trading idea. Later, you will always experience a shortage of quality trading ideas. This is how things are.
You must be in a constant search to find new ideas based on what you already know. Be on a constant search for new knowledge of how other traders are finding ideas.
To learn how to find short-term, swing and long-term trading ideas look inside the educational platform.
Trading Barrier #49 - Chasing the market
Another very common barrier for traders.
We want to catch all the market moves. Especially those of them which we’ve been expecting for some time before they happen.
So, we are sitting nice and relaxed, ready to catch that move which we were waiting for some time. But suddenly the market takes off without us on board. Because we forgot about it or couldn’t take the trade, or else.
Now the thought that we have just missed the biggest profit ever is killing us.
So we try to enter. The problem is that the level we were initially considering, where we have found value is already in the past. The price is getting some distance from it. Thus worsening our initial risk-reward ratio.
You missed that trade. It happens. But don’t chase the market!
In situations like this, the best is to resist the emotional urge and don’t take the trade. Better is to wait because the market may present a better entry point. Also keep in mind that there will always be other trades so best is to wait for them.
Important note: This is more valid for short-term and swing trading. And applies in less extent for long-term trading in stocks for example.
Trading Barrier #50 - The endless search for the ‘holy grail’ in trading
The trading holy grail and all the traders who want to find it.
Some people believe that there is an explanation for every top or bottom the market makes. Some are even trying to explain why the price moved with a single pip or tick.
The holy grail in trading does not exist. There hasn’t been and there will never be something like an almighty trading pattern or trading strategy which is winning 100% of the time.
But is it bad to search for it?
I will be honest with you I am not sure how much of a barrier is this.
On one side some traders jump from strategy to strategy, searching for the flawless one. The one and only trading strategy which is worth trading. They are wasting their time chasing an illusion while what they need is something else. The search for the holy grail ends to no avail.
Those traders couldn’t find that perfect strategy so they decided to quit.
But there is another group of traders also searching the trading holy grail. The difference is that traders from this group realise The Grail does not exist. Their search turns into a self-discovery and trading improvement. Thus their strategies are getting better and better.
The search for trading grail is beneficial for them.
Trading Barrier #51 - Shortcuts to successful trading
This barrier is closely related to the previous one. But while the previous one described the ultimate shortcut to trading success this one focus on understanding what shortcuts can a trader expect.
So there are shortcuts to success in trading, right?
Yes, there are. But not what you’ve expected.
Unlike the trading Grail which would look like a hyperspace jump leading to trading success, the actual shortcuts in trading are very limited.
What I mean by that is that those shortcuts will take you just a few steps higher on the success ladder.
Learning how to trade is the way to find shortcuts to trading success.
Imagine you are a beginner and you get the chance to learn from somebody like Ray Dalio, Steve Cohen, Warren Buffett, Paul Tudor Jones, Larry Williams… that’s what I call a shortcut. It will save you time and money. And will give you the knowledge many traders don’t have even after a decade of trading.
But again, it will not make you such a one. There are more steps for you to take on your own.
There is one more shortcut I’d like to mention here and this is the market gift.
Success in trading might mean many things but for sure one of them is building wealth.
We think the market is cruel but from time to time it is making gifts. Trade long enough and you will experience that.
It happens when you are in a position, let’s assume you sold short, and then the market collapses. It goes way below your target and you book a huge profit.
Thus it is making you a gift. You make more money than you expected. And this also happens faster than you expected. The market took you through a shortcut.
Spread the Word
You’ve covered 2/3 of the barriers so far. That makes you something like an advanced user. By now you’ve probably noticed how some of your trading friends are stuck with a particular barrier. Help them by sharing this guide. They will be grateful!
Trading Barrier #52 - Information Overload and the Аnalysis Paralysis
In the current age, we are exposed to a tremendous amount of information. It is true for every aspect of our lives.
It is also true for trading. Millions of websites, TV channels, radio stations, podcasts, etc. are bombarding us with information. Information like different indicators, analysts’ opinions and news.
That’s true. But is it bad?
Well, it might be if the information we receive is not of good quality or even fake. Also, bad or not depends on our ability to process that information.
A common effect of information overload is the analysis paralysis.
Analysis paralysis occurs when traders are bombarded with information. That information is too much to be processed and they can’t make a decision. Every next piece of information is stating the opposite of the previous one. One screams “buy” other “sell”. Then comes the third one with a “hold” suggestion. That cycle repeats and leads traders to analysis paralysis.
How to deal with the information overload and with analysis paralysis in particular?
To overcome this barrier, you need to learn how to better process the information. Sift off the information and prioritize it.
It might seem hard to do but don’t worry in time it will get easier. The more experienced you become the more information you’ll be able to process and use to make a trading decision.
Beware, processing too much information might only increase your confidence. Too much confidence does not guarantee you will make the right decision.
Trading Barrier #53 - Not Enough Information
Too much information can be as bad as not having enough.
Too little information might lead to a wrong decision. Because the probability of missing something is very high.
Imagine you are trading based only on 200-period simple moving average (MA). Is it OK to bet your money only on this indicator? Even if you are the absolute master of moving averages, it won’t be enough.
Why? Because what moving averages do is showing you only one piece of the puzzle. Let’s say the trend. But that is not enough.
You must operate in the golden mean between too much and too less information. Do that by ensuring you are getting enough information for all parts of your overall trading process. This is what you must work on.
For example, if 200-day MA is a good representation of the trend it might be useful to your entries:
If price >MA(200) AND (Setup A) = True and price >= MA(13) AND Williams %R < 30 then go long.
This is a very simplified example and sure is missing key components so don’t use it. It shows the need for carefully selecting different information sources, get the right pieces and solve the puzzle.
Trading Barrier #54 - Risk, Risk, Risk and Risk Management
This one is too big and too important to be fully explained here.
But there is something you must realise.
Our lives are made up of benefits and the risk we take to achieve them. To get those benefits, we need to calculate, to mitigate, to hedge – to manage that risk.
The next step you are making when walking is carrying a risk. The risk to step on something, to be hit by something, to lose something and many more. You are managing those risks by learning to walk, putting better shoes, walking on paths you know and so on.
The same is with trading. From the moment you set aside a certain amount of money to trading you expose it to a variety of risks like:
- to lose them during the wire transfer to the broker account
- the broker might declare bankruptcy
- your account might get frozen
- you can lose the money in a market crash
- a company you’ve invested in might collapse
- a bug in the trading algorithm you are using might cause a big loss
- another company might collapse and bring the whole market with it (including your stocks)
- wars, terrorist attacks and other force majeure
and many, many more
To learn to trade means to learn to manage risk.
The better you are in this the better trader you will be.
Trading Barrier #55 - Are you trying to make it up for a recent trading loss?
The market has hit your stop-loss and that makes you are angry because you’ll have a losing week, month or year. That invites “I have to make up for that loss” in your head. And you are trying to find another trade as soon as possible, whose profit will offset that painful loss.
More often than not you will end up with an even bigger loss. It will result from either overtrading, removal of your stop-loss or a few trades based on … nothing.
During your trading career, you will have thousands maybe even tens of thousands of trades. One single loss is nothing.
If you want to learn trading learn one thing:
“The first step to correcting a mistake is patience” Star Wars: The Clone Wars
Do not allow one wrong trade to dictate a different rhythm. You will cover that loss with time, at your own pace.
Trading Barrier #56 - Not prepared for the stop hunting
Stop-loss hunting is a part of the game.
Every time you open a naked position (without hedge) the only way to control the risk is to have a hard stop-loss.
But having a stop-loss order makes you a target for stop-loss hunting. It is not focused on your hard stop exactly but more on an area with many stop-losses.
It is “strange” how traders with different trading strategies are placing their stop-losses almost at the same level 🙂
This barrier shows something very important to learn in trading – there is a way to protect yourself from stop hunting. Not to eliminate it, that’s not possible. But to minimize it.
If you want to learn more about stop-loss hunting and how to deal with it check the Pieces
Trading Barrier #57 - Misallocation of time in trading
People struggle to improve in trading due to one strange reason. They did not allocate their time correctly.
Like everyone else, you have other stuff to do in your life besides trading. So the first thing would be to decide how much time you will devote only for trading. It has to be a combination of how much you need for trading and how much you can devote. Try to ensure enough time.
When the time for trading comes, there are three major ways to spend your time:
- learn to trade (researching, backtesting, watching trading videos, reading books, seminars/webinars and so on)
- actual trading (opening a position, placing orders, staring at the screen, calculating probabilities,…)
- chat – talking with other traders on Facebook, Twitter, forums, Telegram, Discord, etc.
The problem here is that traders usually spent most of their time chatting or staring at the screen.
Improvement in trading comes from the first point “learn to trade”. So make sure you are devoting enough time for it.
Trading Barrier #58 - Bad habits
Yes, it is possible to form bad habits in trading.
Take a look around this guide. Many of the barriers presented here exist because of a specific action taken or because of the lack of action. Those missed or taken actions if done frequently enough might turn into bad habits.
For example, no stop-loss or closing trade too early or overtrading might turn into a bad habit.
And this is how you bring yourself a real disaster.
Just look at the other barriers and see if something consistently appears in your trading. Don’t tolerate it. Deal with this barrier.
Trading Barrier #59 - Learn how to spot and ignore the lies in trading forums
Trading forums are full of billionaires. Some people there even made more money than Jeff Bezos while trading only with EURUSD!
I am joking of course. But the forum talks are not a joke and can be dangerous.
I know people who were about to quit trading because they began to think “I am the only one around here who can’t make a winning trade”.
You have probably experienced it too. The moment you make a losing trade is the moment when everybody inside the forum is bragging about how they won. How they caught that big move.
It can be painful.
But have in mind that nothing can be further from the truth. Most of those “winners” hadn’t thought of such trade at all. Some of them do not trade at all. They just saw a big move which they wished they had caught. Since nobody can verify it, they’ve decided to play the role of a successful trader. It is very common for trading forums.
Pretending they did something of importance makes them feel better.
Trading has such an effect on people. They pretend to be better than they actually are.
Trading Barrier #60 - Overwhelmed with other tasks
Especially when you are trying to combine trading with your day job or business. Sometimes other tasks completely dominate your thoughts. Even if you have the time to trade you just can’t get those other things out of your head.
It will be better to resolve those other issues first. To force yourself to trade while not completely concentrated is not something you want to do.
Also, have in mind that those other tasks might make it harder to continue your learning process.
Answer to the question from Trading Barrier #4 - Learn to Trade by Avoiding this Mistake
Both trading strategies made money after one hundred trades.
But to answer which trading strategy has higher probabilities of success we need to calculate the trading expectancy.
Expectancy = (Probability of Win * Average Win) – (Probability of Loss * Average Loss)
First, we calculate the following for trading strategy A:
Probability of Win * Average Win = 0.9 * 400 = 360
Probability of Loss * Average Loss = 0.1 *2000 = 200
The same for trading strategy B
Probability of Win * Average Win = 0.4 * 1000 = 400
Probability of Loss * Average Loss = 0.6 *200 = 120
Expectancy for A = 360-200 = 160
Expectancy for B = 400-120 = 280
This simple method shows that trading strategy B is the better choice.
Of course, this is only one simple method of comparing two strategies. It is a start but not enough. There are a lot more things a trader can learn here.
Trading Barrier #61 - Feeling too tired to trade?
If too tired, don’t trade. Better to miss a trade or two than to make something stupid.
If this tiredness doesn’t disappear, do something about it. Eat well, sleep well and exercise. See if something from those three is not missing, Something which can cause a constant feeling of being tired.
Sometimes a new piece of trading knowledge will give you the energy boost you need. Search for it!
Trading Barrier #62 - Winners turned into losers
To have a good unrealised profit for some time and then to lose a big part of it or even to see it turning into a loss is something we, as traders, are very familiar with.
I’m saying we because this was one of my biggest barriers.
It was very common for me to guess the right market direction and to time the position well. But after that, I was keeping the trade alive longer than it was necessary. The result? Well, most of the time I closed well below the maximum profit. On some occasions, I even banked a loss.
Why did this happen? In most cases, it is because of greed.
All those times I believed that the move won’t end soon. That there will be an even a greater move.
The problem was that many times the corrections were so severe that they ate my profit very fast. That forced me to close the position and when the new move in the same direction started I had to enter again.
Imagine you are aiming at 1:4 Risk Reward ratio. After a few days, your unrealised profit is 2.5 times the initial stop-loss. You choose to not close it and wait for the target. The market reverses and hits your trailing stop. Now the profit you took is about 1/2 the size of the initial stop-loss.
Sure there was profit but compared to the next loss it is not something you can gain an advantage with. Average profit to average loss ratio is getting worse
If it happens only once it’s not a big deal. But if it occurs frequently, it will worsen your performance.
Dealing with this is not easy. It requires you to be clear on what are you aiming for. How fast it can go there and other difficult to answer questions. Then create a set of rules including targets, exits signals and trailing stops.
Learning how to trade you quickly realise that the exit is the hardest part of the trade.
Keep in mind that leaving money on the table is guaranteed in this business. Learning to trade means to learn to keep that left on the table amount as small as possible.
Trading Barrier #63 - FOMO trading or the Fear Of Missing Out
Another barrier which every trader is facing during his/her trading career. The fear that you’ll miss the biggest market move or the biggest profit.
On many occasions, a missed profit hurts more than an actual loss.
But the pain of it is nothing compared to the mess which you can create if you try to catch an imaginary move (yep, it is still only in your head not on the charts).
There are two major problems here:
First is that FOMO in trading will make you think that such a move will happen for sure. And it will be gigantic. That will make you see everything as an entry signal.
Quickly you will lose patience, won’t wait for a confirmation (real signal), you will jump the gun and open the position. The would lead to many entries (many stop-losses hit) and the move might not happen at all.
The second problem with the FOMO in trading occurs when there is a sharp move which you missed. The fear of missing out the best trade of your life will force you to enter on a higher/lower level where the move might be exhausted already. More about this was written in barrier #49 Chasing the market
In both cases that FOMO will force you to enter either too early or too late.
Like it was mentioned before, learning to trade means to know your emotions and learn to deal with them
Trading Barrier #64 - Constantly changing your mind about trades
Typical for beginners. After spending some time on the charts, they form an opinion about a possible trade. That opinion is later changed every time somebody tells them something different.
So many changes that in the end, a trader will either trade somebody else’s view (not a good idea) or will feel completely blocked, unable to make a decision. The last case was discussed in barrier #19 “Can’t take the trade!”
Most of the time this happens because of a lack of trading knowledge. Other traders are telling you something you haven’t consider in your analysis (because you didn’t know it). That new information looks significant compared to what you’ve examined so far. Thus it is easy to change your opinion.
That barrier will disappear with the increase of your trading knowledge. That is why it is very important to continue efforts to learn to trade.
Trading Barrier #65 - Finding Trading Buddies and keeping meaningful relations with them
To be happy people need to socialise. Because traders are people (no one has proven otherwise 🙂 ) we also need somebody with whom we can talk about trading.
But this is way more difficult than it looks.
Go ahead and tell your friends that the P/S is comparatively higher or that we are in wave B and RSI is still oversold or, this is the best, the last candlestick was a doji.
That is the fastest way to end a conversation.
But do you need somebody with whom to talk about trading?
I bet you do. Of course, there can always be an exception to that. But try it. Go to a local gathering, conference, seminar, forum, chat groups and speak with somebody about trading. But first, devote enough time because such conversations tend to be long 🙂
Beside pure social effect having a person with whom you can discuss positions can have a positive effect on your trading results.
As Ray Dalio explains in his book “Principles”:
“surround yourself with people who are knowledgeable and often disagree with you“.
Such people will show your mistakes and might save you from Trading Blindness.
Another positive effect of having a trading buddy is that you can do researches together. Splitting the amount of work will decrease the time needed to find a good trading idea or to test a trading setup.
How to find a trading buddy?
Maybe you went to a trading course together. Search for people who share your belief in a certain trading approach. Or a person with whom you share an interest in somebody’s principles.
Trading Barrier #66 - Trading Blindness
In barrier #8 “Did Your Bias Kill Your Last Trade?” we’ve discussed a similar problem. But it was more about the general picture, about what markets are doing, how a sector or a business is doing and so on.
Trading blindness occurs in the final stage where you search for an entry and exit points.
In the next few paragraphs, this barrier is explained. Please pay attention because no matter how much you’ve learned about how to trade, such a barrier can make your efforts meaningless.
Sometimes we are so passionate about one trade that we can’t see many things which point out that it will be wrong to do it. We can’t see clearly what charts and indicators are showing at the moment. The problem is that we are not even looking for those things.
That leads to an open position which is not based on a significant analysis.
Do you know how to tell if you are experiencing a Trading Blindness?
Think about how many times the following happened:
You’ve just opened a trade and “oh, no! Why didn’t I see this, oh man everything is against that trade. What am I doing?”
It is a very specific moment. After the order was filled, you’ve instantly felt like you have just awakened only to realise that you haven’t even consulted your other trading rules. And now the position looks worthless.
Another form of trading blindness occurs when you can’t find a trade even if it is in front of your eyes. You are staring at the screen and can’t see anything. Then later when the market moves and you see that it was an obvious trade.
You can avoid that with a strictly defined trading process. For example a checklist or step-by-step instructions about what to look for.
Trading Barrier #67 - Getting angry while trading
Learning to trade means learning to control your emotions. Anger is one of them.
Let’s be honest, trading eventually gets to all of us. All those missed trades, missed profits, wrong orders, platform crashes, stop-loss hunting, consecutive losing trades,… it makes us angry.
We all have experienced this. Some more, some less. But there is a certain level after which it gets ugly. When even the smallest things make you angry, you will find your ability to analyse the market significantly compromised.
One thing is sure you can’t continue like this. It is both bad for you and your trading results. It is bad for your money!
So what shall you do?
Finding the problem is always the first step to solving it. So think about what is the reason for that anger. If there is a specific reason like not enough time or lack of focus on trading or the system is not working, there might be a way to solve it.
But it can also be the result of accumulated stress over time (very common). Here I can suggest you also try Yoga, Qigong and meditation. This can significantly decrease stress levels. Swimming, jogging even walking might help too.
In this piece #A12, I am showing a very useful mind technique. It is specially designed for traders. It has a good effect on a trader’s emotional balance. And will help you gain back the control over your emotions.
Trading Barrier #68 - Being too dependent on other people's advice, trading strategies, signals, algos, etc.
Learning something new is always hard. No matter if it is a sport or a job, for example. It is always connected with a lot of learning and lots of mistakes.
One way to speed up the learning process and to minimize the number of mistakes is to rely on somebody who has done it. A teacher, a colleague, a mentor, a friend or even some kind of service which can help you at that moment.
The same is with trading. To start you need a platform, a broker, someone to explain to you how to trade. Or maybe you will buy an algorithm or subscribe to an advisory service, and so on.
The problem is that some traders become attached to everything they use. So attached that they become dependent on that person or service.
Let me illustrate this with an example.
One of the first thing you will struggle with as a newbie is to draw trendlines, support and resistance levels. Right now there are a lot of services out there which automate that. They are drawing the lines and finding the levels for you. The idea is to save you time and efforts and also be more precise.
You start using it and everything looks great until the service is discontinued or there is a price increase. At that moment you realise how dependent you’ve become on this service.
The dependence might also occur when you follow somebody. There might come a time when you are copying somebody else’s ideas, techniques, etc. Thus you are becoming dependent on his willingness to share and his abilities to trade (nobody is perfect)
Don’t let anything of the above happen.
We’ve already discussed in barrier #3 how everything is changing. You can always use somebody else’s advice or service but you have to be able to form a trading opinion on your own.
Now would be the right time to check everything you are using. Check if you are too dependent on something. If yes, do something about it.
Trading Barrier #69 - Trading sentiment. Do you need to follow the crowd?
If there is anything in trading with proven usability it is the trading sentiment.
Analyzing what different groups of traders are doing can give you very important conclusions about the market
This barrier focuses only on the group of traders called the crowd, herd or the mass.
The crowd consist of inexperienced and ignorant traders. Their actions are based on an emotional response to different events. Events like large market movements, breaking news and other articles from media, an opinion from so-called market gurus and so on.
The crowd is forming their trading opinions based only on emotions.
To follow the crowd will mean to buy or sell when that large group of emotional, ignorant and inexperienced traders are buying or selling.
Usually, the crowd is wrong and following it blindly is something you should avoid. Especially when their exposition reaches an extreme. The worst place to be a buyer is when the crowd is heavily long. The same if they sell short like crazy that would probably mean the decline is over.
If your trading sentiment analysis suggests that the crowd is buying or selling that is a sign of approaching a top or bottom.
This barrier explains the case when the crowd exposition is near extreme. But the crowd CAN be right! On some occasions, in real life and trading, following the crowd can be beneficial.
The key to using trading sentiment in your favour is to correctly distinguish the behaviour of the crowd.
Also, note that trading sentiment applies not only to the crowd. Some market participants know what they are doing and it pays to follow them.
Learn to form your own opinions and don’t allow yourself to be too carried away by the hot topics of the day.
To learn to trade you must learn how to use the sentiment.
Trading Barrier #70 - Trading principles which will stand the test of time
We all struggle with this barrier. One can never have all the trading principles needed.
The problem is that you have to have trading principles. But as it often happens the moment you write them down is the moment when you have to make corrections. Because the market immediately proved you wrong.
Don’t worry this is happening to all of us. Extracting and formulating your own principles is not an easy task. First, you have to draft them and then they have to stand the test of time. And the test of the markets.
How to begin?
Ask other traders. Maybe some of their principles would be worth borrowing. But double-check them. You don’t want the market to invalidate those borrowed trading principles with your own money, right?
I am not sure if somebody can extract all trading principles but I am sure of one thing:
Trading Barrier #71 - Sitting all day in front of the screen
Some traders can’t stay away from their trading platforms even for a second. And it does not matter if they have open positions or not.
I remember a meeting of traders when two people were watching at their phones all the time, speaking to each other “look, look, it is moving…, yes, yes… oh no please don’t stop.
Do the work, analyse the market, form your trading opinion and place your orders. Then give the market some time to do what it will to do.
By sitting and looking your trades all day you won’t change the market. You will only destroy your health and your results will probably suffer too.
You can spend your time better. Exercise, learn something new about trading, explore new trading ideas and so on.
Trading Barrier #72 - Don't Take Losses Personally!
This one is closely connected with other barriers.
Always remember that even the smartest person on the planet won’t have only profitable trades. So when you have losses, as we all have, don’t take it personally. Don’t be upset or offended by them. Instead, try to learn from them and move on.
The latter is the key to learning how to trade.
Trading Barrier #73 - Juggling with too many trades
I remember the first time when I was having open positions in 7 different trading instruments. Plus I had to manage my portfolio of stocks.
I was trading everywhere!
I had open positions in Grains, Softs, Metals, Energies, Bonds, U.S. Stock market indices and in Currencies.
At that moment, I must confess, that I couldn’t even remember what I was waiting for in some of those trading positions. As you can imagine it was not written down (I am not much of a “keep a trading journal” type)
That is not good because you could easily lose control and end up with many losing trades and later with some big losses.
How to handle so many trades? Keep a journal and write inside why you opened a position and what are you waiting for.
Orders must be in place to support what you’ve written. Don’t expect that you will be fast enough to manually exit so many trades in a short period.
The more you learn to trade the more positions you’ll be able to manage at the same time. But keep in mind that everything has its limits. They say that you can’t effectively manage more than 7 people. The same is with your short-term trade.
Trading Barrier #74 - My too specific trading strategy is no longer working!
This points one more time the importance of “learn to trade” process which never stops.
You can’t solely rely on a trading strategy which is exploiting a very narrow niche. Because when that niche is gone you will instantly become unemployed.
I have seen this happen with many traders.
One trader had a Forex trading strategy dependable on the high leverage. The moment ESMA lowered the leverage in the European Union he quit trading.
He didn’t want to go to an offshore broker because it is risky. And he didn’t have another trading strategy or the money to trade without so much leverage. All his efforts and time spent on building this strategy were wasted.
Another one was trading binary options.
He was very good at exploiting the wrongfully set coefficients of some brokers. But those binary options brokers were quick to adapt. That was the first blow. Somehow he survived that brokers’ adaptation. He adjusted to the new reality and his trading strategy was winning again.
Until ESMA banned the binary options!
He tried to change his trading strategy so it can work in Forex but with no success.
Read once again barrier #3 Everything is changing because it is a major barrier. And if the current one also applies to you learn to trade more instruments and with more strategies. That is the way to overcome it.
Trading Barrier #75 - Superstition and rituals in trading
Trading is a very, very emotional game. Add to this the constant search for trading patterns and it is not that hard to “notice” how wearing that purple t-shirt always brings you profit 🙂
I don’t have hard data to back this up but I bet many of you think twice before trading on Friday the 13th. Or if a black cat surprised you in the morning.
Besides superstitions, there is another thing which many traders do. They have a daily ritual of some kind. A ritual they perform before or after trading. It is the same as with professional soccer players we see on the screen. Or like the boxers do when they go the ring.
But are those superstitions and rituals bad for your trading?
Let’s begin with the first. A few things here are worth mentioning:
- If you superstition is based on something connected to trading (don’t sell short a stock crossing $90, or don’t trade the first 30 minutes after the opening, etc) try to backtest this. If it proves right, then it is no longer a superstition but a fact to use. If not, it will be easy to disregard it.
- if it is not trading based. Don’t fool yourself that if you drop your wallet before you begin trading or if it is Friday, the 13th it will lead to a big trading loss. Or to say “I wish I am the best trader in the world” when you see a shooting star will make you a billionaire.
The price we all see is based on the transactions of millions of traders. Some of which are trading with an amount significantly larger than yours. That makes it impossible for your superstitions to move the price in your favour, right?
No matter how much you wear that purple t-shirt it won’t change anything if you are not putting a stop-loss or if you not selective enough.
Best is to get rid of those superstitions. Don’t let your fear have a grip on you.
What about trading rituals?
What a trading ritual might bring is confidence and calmness. The first one is debatable whether it is useful. Not good if you don’t have it but being too confident in this business is the shortcut to looking for another job.
On the other hand, we definitely need calm. Being calm will allow you to reach full potential and apply what you’ve learned about trading. So if performing rituals is the way to do that, continue with it.
Trading Barrier #76 - Assimilating new trading knowledge
A very important barrier to overcome.
It is impossible to learn everything about trading in the first trading course you’ll take. There would be moments (a lot of them) in your trading career when to continue, you will face the need to find and assimilate a huge amount of new knowledge.
Finding a source of trading knowledge is hard. Still, there are people around the world who can supply you with knowledge. But then comes the hardest part- to assimilate that knowledge.
Many times I have seen the following:
A trader is learning a new strategy. During the course or the mentor session, everything is ok. But after that, he sits in front of the screen for the first time, starts to do what he was told and… boom, a total disaster. He can’t do it, only losses or can’t find a signal at all.
In such situations, people feel so confused and overwhelmed. During the course the teacher made it look easy but doing it on your own is different.
Imagine if from being a pure technical analyst you now include fundamental analysis! All those ratios, economic data, top-down, corporate statements,…
What is next?
After facing this barrier, people decide that it is too complicated for them or it won’t work. And they go back to their previous trading strategy.
What a waste of time and resources, only to return to your previous doings which probably don’t work.
In learn to trade process you will face this barrier. Don’t expect that what you learn will be easy to use. Everything has its natural resistance. Some pass through it easily, others not. If what you were told sounds logical and can be proven, mobilize yourself and push through that barrier.
Piece of Trading is presenting new trading knowledge in an easy to be assimilated way. That will decrease the chances of you returning to your previous trading ways and bad trading habits. Try it for FREE here.
Trading Barrier #77 - The Big Money Maker barrier
Wow, this is huge!
You will know if you are facing this barrier if you search for answers to the following questions:
- How to increase the returns while keeping the risk unchanged or little changed?
- How to lower the risk, but keep the returns unchanged?
- How to add more money without worsen the performance?
- How to safely increase leverage?
This is one of the biggest barriers you will face if you stay long enough in trading. This is the barrier standing between winning traders and the Big Money Makers.
By now, in the other barriers I’ve tried to share something that can improve your trading but I am afraid this time is different.
Why? Because this topic is complicated and dangerous.
There are techniques which help with that. But they require a certain level of trading experience. Trading experience with different instruments and larger accounts.
It also requires you to show that you have successfully overcome the other barriers.
Imagine you are playing a Big Money Maker, trying to increase returns while at the same time you still have problems with closing a losing trade. This can quickly turn into a disaster.
Learn to trade by focusing on the other barriers first. After that, when you’ve achieved some consistency in profits, you can focus on the Big Money Maker barrier.
… look again at that “strange-looking losing position” in your account statement.
But now it doesn’t look that strange.
Now, it doesn’t look something unavoidable.
Now, you begin to understand why it is there.
That it didn’t take money out of your pocket because of some unknown reason you don’t understand. It exists because of some gigantic trading barrier standing in front of you.
Imagine what would it be if you start to feel your profits in the same way!
Imagine what would it be you feel your risk management in the same way!
Imagine what would it be if you overcome all those 77 barriers!
You can do that!
Don’t let that big number scare you.
One plus one plus one will lead to 77!
Open your checklist. Pick one barrier. Learn about. Then knock it down.
Then another one. And another one.
And before you realise half of them would no longer exist.
Now you learn to trade.
Founder of PieceofTrading.com
P.S. Any problems and hickups? I am here to help