Beware of The Trading Pandora’s Box

In Greek Mythology, Pandora’s “box” was actually a large jar given to Pandora (the first woman on Earth), which contained all the evils of the world. Pandora opened the jar and all the evils flew out, leaving only “hope” inside once she had closed it again.

Today, the phrase “Open Pandora’s box” means to perform an action that may seem small or innocent, but that turns out to have severely detrimental and far-reaching negative consequences.

How does the metaphor of Pandora’s box apply to trading? Glad you asked ;)

Sometimes, an action or even a thought or idea we have regarding trading the markets may seem small and innocent but leads to disaster. Have you ever been cruising along in your trading routine, doing well, staying on track, staying focused, but then you take one trade you knew was a bad one and it seems to lead you off course and you spiral you out of control? In trading, we are constantly battling temptation to trade too much, risk too much, make the wrong decision, listen to the wrong ‘guru’ and just one little misstep can ruin months or years of hard work.

Simply put, as traders, we grapple every day with the potentially disastrous consequences of opening the “Pandora’s box” of trading mistakes….

As the Greek myth says, once Pandora opened the box, all the evils were released and only hope remained. This is very true in trading as well; once you get off track, it really leads you down a road of temptation that often results in worse and worse trading mistakes until one blows out their account and is left with only the hope of making money. The best way to achieve trading success is simply to make sure you never open “Pandora’s box”. The first step to accomplishing that is by knowing all the ways in which this box can be inadvertently opened…

Here are a few common things that result in Pandora’s box of trading mistakes being opened…

The Pandora’s Box of Trading Mistakes will open if you…

Here are the two big ones…

• Over-trade
  

Ah, over-trading, perhaps the arch-nemesis of all traders as it is constantly lurking in the darkness, waiting to snatch us from the path of prosperous trading. Perhaps more so than any other trading mistake, over-trading is one that very quickly leads to an ever-growing avalanche of trading mistakes. You take one trade that you knew beforehand didn’t meet your trading plan criteria and boom, you’ve opened Pandora’s Box. Maybe you can just ignore that bad trade and go right back to being a disciplined trader, but sadly, most people cannot do this. The feeling of regret sets in, then the anger comes, then they jump back into the market to try and “make back the money” they lost on that one ‘stupid trade’. At this point, the cycle is basically set and stone you’re very likely to lose a lot of money as you continue to chase the market and try to ‘fix’ your past trading mistakes (by trading more). They end up over-trading more and more until they blow out their account.

Perhaps you heard a ‘tip’ from a friend, but you know it doesn’t mesh with your trading plan, but you take the trade anyways. Sure enough, it results in a loss.  You are mad now, because you knew you shouldn’t have taken that trade and it cost you money, and you broke your discipline and consistency. Most people will then commit another error by jumping back into the market to make back the money they just lost from that stupid trade. This leads to more losses and it snowballs out of control.  One break from your routine, can cause this, just one. One little slip-up and you’ve opened Pandora’s box.

• Risk too much

Risking too much on a trade, more than you are comfortable with losing, is an excellent way to open the Pandora’s box of trading mistakes. Think about, what better way is there to become overly-emotional about a trade than by betting too big on it? It makes you think about it constantly and makes you micro-manage it, causing you to exit prematurely or otherwise at the wrong time. Not only that, whether you win or lose on a trade you’ve risked too much on, you’re doomed to open Pandora’s box…

If you lose, you will be hurt that you lost more money than you knew you were OK with losing. So, you’re probably going to try jumping back into the market to “make it back”, probably on a trade that isn’t there or that doesn’t meet your criteria, leading to yet more losses. If you win, you’re going to get over-confident and probably continue risking too much until you lose, sending you back to the market to make that money back and probably lose more.

You can see how one wrong move, either trading too much or risking too much will start a snowball effect of trading mistakes that simply get worse and worse until you blow out your account.

Here are some other things that may cause the Pandora’s Box of trading mistakes to open…

• You had a fight with your spouse or friend or perhaps a death of a loved one (or you’re otherwise in an emotionally distressed state) and you’re emotional from that, you turn to the market for ‘comfort’ – enter a stupid trade and lose, bam Pandora’s box is opened. Simply put, you MUST be in a good or at least a normal emotional state to be able to trade with discipline and consistency.
• Here’s one you probably didn’t think would open Pandora’s box: Trading from your phone. This seems little and innocent, but in my opinion, it’s a quick way to open the ‘box’ and let the evils of trading out. For one thing, the charts look smaller and more compressed on a phone, they simply look out of scale and you don’t see the price action or price patterns how you would on a computer or laptop screen. This is very dangerous. Trading from phones also can easily induce over-trading because you’re constantly tempted to look at your phone all day at work or wherever you are. For these reasons and more I advise against mobile trading.
• Finally, do you want to open Pandora’s Box quickly and easily? Start trading real money before you’ve learned how to read a price chart or before you’ve developed a strategy and trading plan. I get emails all the time from people who have clearly just started to learn about the markets and who are also trading live accounts and wondering why they’re losing all their money. Trading looks easy on the surface, but to profit from it consistently, it takes proper training, experience and time.

How to Avoid Opening Pandora’s Box

To start, the main thing you need to do to avoid opening the Pandora’s box of trading mistakes is to simply make sure you don’t commit any of the above errors. Now, that’s easier said than done, I know, but I’m going to give you some insight into how you can avoid them…

• Survive long enough to thrive.

You need to think of trading as a game of survival of the fittest, because it truly is. Only the strong survive in the trading world, and if you want to survive you have to plan and protect.

One of the biggest things that beginning traders get wrong is not managing their risk capital properly. They trade it all way and then when a high probably trade signal finally comes along, they have very little or no money left to take advantage of it. If you want to thrive or even just survive in trading, you must trade smaller position sizes in the beginning so that you preserve risk capital long enough to figure out what you’re doing. When you have truly mastered your trading strategy, then and only then should you increase position size. Remember, trading is a marathon, not a sprint.

• Learn to walk before you run

As I mentioned earlier, traders who start trading live before they’re ready, usually end up opening that Pandora’s Box of trading mistakes. So, how do you know if you’re ready to trade live? Well, it will vary from trader to trader / person to person, but, you should have attained a solid understanding of price action and how to read it and trade, as well as trader psychology and money management before you start trading live. Therefore, you need a proper trading education, so that you can learn these things in a proper manner.

Don’t worry about getting rich fast because it’s not going to happen. Worry about learning to trade properly and applying what you’ve learned slowly and small at first, then as you get more experience and confidence you can work your way up.

• Too much of anything will kill your trading account

I’ve written many articles on over-trading, but if you still don’t know why it’s so bad for your trading account, consider this…

Do you want to behave like a gambler in the market or like a skilled, calm and collected trader? I suspect your answer is the latter, and if that’s the case, you need to listen up…

You aren’t going to find a lot of high-probably signals every week or month in the market, because they just don’t happen with high-frequency. If they did, everyone would be rich. There’s a reason only 10% of people really make it as traders, because most people simply do not have the patience or self-discipline to withstand days and days of doing nothing if there are no trades worth taking, and that’s what you must do! Also, most people don’t learn enough to really know when a high-probability trade worth risking money on is present on the charts. So make sure you’ve learned enough to know what you’re trading strategy is and what a high-probability trading edge looks like so that you know when to trade and when to sit on your hands.

• If you play with fire, you’re doing to get burned

Do you like your money? Stupid question, right? Well, most people trade as if they HATE their money, which is REALLY stupid, right?

If you’re risking more than you can comfortably stand to lose per trade, you’re acting as if you hate your money. How do you know how much you can afford to lose? Well, you can plan it all out and figure it out mathematically, or you can simply do what I call the risk sleep test.

Can you fall and stay asleep soundly at night? Are you Ok with not looking at the charts / your trades for 24 hours? If so, you’re probably risking a safe amount. However, if you’re preoccupied with your trades in any way, shape or form, you’re risking too much and as a result you need to dial-down the position size you’re trading.

• Learn to plan and anticipate

The best way to prevent your future trading self from inadvertently opening Pandora’s box, is to learn how to anticipate trades. You need to develop a trading plan built on anticipation, instead of only reacting to the market.

Your approach to the market should be to learn enough about price action and technical analysis so that you can begin reading the market like a book and identify areas on the chart you’d like to trade from before the market gets there. Then, if the market reaches the areas you’ve predefined and forms a price action signal there ideally, you only need to execute the trade, not think. The thinking and planning should be done in advance. If you wait until you think you see a signal to start planning your approach, you’re already too late in most cases.

• Have a trading plan

Finally, perhaps the ultimate tool at your disposal to keep Pandora’s box sealed shut, is a good trading plan. You need a trading plan so that you rely on the plan to guide you, rather than just your feelings. We humans are flawed, but our saving grace is our ability to plan into the future. By planning our trading approach, we eliminate much of the possibility of self-sabotage in our trading.

Trading plans also provide accountability. Trading is a very solitary endeavor. Whilst it’s awesome there are no bosses telling you what to do, it’s a doubled-edged sword. What’s stopping you from over-trading or risking too much? Only you, and you cannot trust yourself 100% in the trading realm where you’re constantly bombarded with temptation. But what you can do is develop a trading plan and commit to staying accountable to it.

The key is to stay disciplined, stay consistent and stay accountable. You must do this for every aspect of trading because if you get off track on anything, you’re going to open Pandora’s box and then it’s lights out!

Conclusion

I’m here to help you avoid opening Pandora’s box, to survive the trading game long-term so that you can not just survive, but thrive. I want to help you so that you will be ready and waiting to strike like a crocodile with capital ready when you have mastered and honed your skill.  You can’t hack or cheat the markets, if you don’t follow the basic principles you will be chewed up and spit out faster than you think. Don’t let your ego and impatience destroy your trading account or chances of success…

However, I can only share my knowledge and experiences with you, but it’s up to you to listen and take action and heed the warnings I’m providing. If you do this, you will end up with the results you’re looking for, if you don’t, then sorry but you likely won’t make it.

What’s did you think of this lesson? Please share it with us in the comments below!