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7 Bad Trading Habits to Break for a Better Trading Routine

  • 6 mins read ●
  • Last Updated:
bad trading habits

Trading is all about consistent systems that are finetuned and oiled over time. Trading success oftentimes hinges on habits, like it is in our day-to-day life; consistent routines become habits, and these habits significantly influence outcomes. Not surprisingly, bad trading habits will mess up your psychology and will affect your trading, derail progress, and lead to losses and frustration.

Like any other thing in life, you must learn how to break bad trading habits to improve your trading performance. But first, you must recognize these bad habits that often lead to more losing trades than winning trades. So, let’s take a closer look at the top 7 bad trading habits that you need to break to get into an elite level of trading:

1. Failing to Plan Trades

The absence of a well-structured trading plan is similar to navigating turbulent seas without a compass. A comprehensive trading plan should encompass entry and exit points, risk tolerance levels, and defined strategies. This blueprint ensures you have a systematic approach to trading, minimizing impulsive decisions.

Failing to plan your trade leaves you frustrated and in a vulnerable position. This opens you up to overtrading, trading unplanned instruments, and in all, it will deflate your confidence and your trading account too.

Solution

To avoid this bad trading habit, get a trading plan that you can follow religiously. We might have been able to solve that part for you as there is a trading plan template you can follow.

2. Not Cutting Losses in Time

A cardinal sin in trading is the reluctance to cut losses promptly. This habit often stems from the fear of admitting a wrong decision or hoping the market will reverse when you are in a bad trade. However, holding onto losing positions can exacerbate losses, adversely affecting overall portfolio performance. It’s crucial to set predefined exit points and adhere to them diligently.  

We all had that one trade that was in the negative, but we held on to it because we were hoping that it would come back into the blues. It is a habit and a bad one.

Solution

Not cutting losses in time is most times down to not trusting and following your trading plan. Once you have all the iron-clad blueprints in place, trust the system you have put in place and follow it. Don’t be afraid to close a money-losing trade. Success in trading is a long journey, and no one, including yourself, should judge for losing a trade.

3. Inconsistent Journaling

A sporadic or inconsistent trading journal defeats its purpose: to keep you accountable. A meticulously maintained journal serves as a valuable tool for self-assessment, aiding in the analysis of past trades and facilitating future strategy refinement. Detailed documentation allows traders to identify patterns, strengths, and weaknesses.

When you journal only when you feel like it, what happens is that there is no acknowledgment of trades that went bad, the ones that hit stop loss. Thus, it is a biased trading journal.

Solution

You must discipline yourself such that you document every trade. No trade should go without you documenting it. That is how you give yourself a complete picture of how your trading is going. The good thing is, that we have a trading journal template just for you to use to record all of your trades.

4. Revenge Trading

Emotional reactions after a loss often lead to impulsive decisions, perpetuating a cycle of further losses. This is known as the cycle of doom or tilt trading, and it is one of the biggest obstacles traders must overcome to become consistently profitable traders.

Revenge trading, driven by frustration or anger, seldom aligns with a rational strategy. It’s crucial to detach emotionally from trades and base decisions on thorough analysis rather than emotion.

When you are on a losing spree, you look at the next trade as the trade that will give you the money that you have lost all along. You are all about forcing that win to come to you. This puts you in a position where you are chasing the market, and you are no longer trading your plan.

Solution 

Your trading plan is integral in your trading journey. It is the document that helps tame your habit. If you stick to your trading plan, the risk of revenge trading is significantly reduced. You can stay on script, cut out your losses once it negates set-down trading rules, and journal the trades.  

5. Jumping Between Systems

Constantly switching between trading systems hinders the mastery of any particular strategy. It takes time for a system to prove its efficacy, and consistency in trading is key to allowing it to demonstrate its full potential. Patience is the bedrock of success in trading systems.

Before you move systems or trading strategies, you want to make sure that you have tried to make the most of the system that you currently have. Equally important is the need to backtest the new system you are moving to before you go live.   

Solution

Quit the itchy finger; changing systems won’t make you a more profitable trader. Consistency in your dealings and habits is how you become one. Thus, consistency and improving the bottom line through the right habit set should be your primary concern. Until your current system has proven too redundant, you should only improve on it.

6. Trading Overconfidence  

As a trader, you want to be confident enough to stand by your trade, but you don’t want to be stacking your entire portfolio on the wrong analysis or an ineffective strategy. You may have done extensive research, but at the moment of taking the trade, you find out that the conditions are significantly different. What should be done in that situation is to adapt to the condition.

If you stay out on a limb and allow your trading overconfidence to delude you into taking unnecessary losses, it is only a matter of time before your portfolio takes a significant hit.

Solution

The moment you see that the market is going against you and your strategies are not holding, it is not the time to be overconfident. Look it over, assess the situation, and ensure you are not trading outside of your plan, too.

7. Neglecting to Use Reward for Bias Strengthening

Ignoring the concept of reinforcing bias through rewarding actions can lead to missed opportunities. Recognizing and rewarding sound trading decisions can strengthen positive biases and contribute to a more effective trading routine. If necessary, make your trading checklist before you start your trading day. Small things can make a huge difference.

Whenever you are picking up good trading habits, reward yourself for it. It doesn’t have to be huge, small treats can reinforce positive bias, too. Planning to have a snack after a week of consistent journaling, for instance, is a good idea.

Solution

Think of the commensurate reward you can use to maintain and reinforce positive bias in your trading journey and get into implementation immediately.

How to Avoid Your Bad Trading Habits?

Now that you know some of the bad trading habits that you might have fallen victim to, overcoming them is key. The first step is acknowledging that they are indeed bad habits, only then can efficient work be done on rooting them out. Remember that a bad habit is a mistake that you keep repeating and often leads to a losing trade. 

These habits need to be replaced with the right ones, and that is where positive reinforcement comes in. Becoming a consistently profitable trader is hard work, and the right habits and trading strategies are the foundation on which it is built. 

And, if you still need help, we are here to assist you along the way. By joining our trading academy, you can regularly discuss with our trading coaches and join a trading community.


Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.

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