7 Deadly Trading Sins
We’ve been running LTTTM for about 4 years now, and in that time we’ve literally received thousands of emails, so we thought it would be an entertaining experience to list some of the most common problems that traders write to us about and provide you guys with some insight into how to fix them. We are calling these the “7 Deadly Trading Sins” because they are some of the mistakes that we see traders making over and over again which sabotage their efforts to become successful in the markets.
Note: After you finish reading today’s article please leave some feedback and tell me which one of the following 7 Deadly Trading Sins gives you the most problems.
1) Risking 2% of your account (it’s ridiculous)
Risking a set percentage of your account is something that many Forex trading websites talk about, and it’s something that many Forex traders do; however, the reality is that it’s a flawed approach, and it could be keeping you stuck in a cycle of poor trading performance. Let me explain:
The main reason why most traders think risking 2% or some fixed % of their account is a good idea, is because they believe it allows them to increase their position size gradually as they build their accounts, or decrease their position size gradually as they hit losing trades. Whilst the former point might be decent logic, it’s the idea of reducing your position size after every losing trade that I have a problem with. Imagine that you lost 50% of your capital (it happens, as you probably know), you now have to make 100% of your account just to get back to breakeven. Obvious you say? I know. Well, what’s not obvious to most using the “2% rule” is that when you draw down 50% of your account, that same 2% risk is now going to be a 50% smaller position size!
So, your task is now to make 100% on your account with a position size that’s 50% smaller than what you were trading…just to get back to breakeven. If you can’t see what I’m trying to say here, it’s that the 2% rule keeps you in a rut when you hit a string of losers (and you will hit a string of losers). Yes, it keeps your position size smaller after losing a trade(s)…but why do you want to automatically reduce your position size after every loser? It’s like saying that JUST because you lost on 4 trades in a row you think you are going to lose on the next 4 so you better reduce your position size. That flies in the face of the FACT that if you have a randomly distributed trading edge (ALL trading edges are randomly distributed) you never know for sure when you will hit a winner or a loser. So, whilst the 2% rule might be OK for brand new traders who just want to “test the waters” and take it slow, for traders with some experience under their belts and who have mastered their trading edge, it simply does not make any logical sense.
SO, if you’re reading this, please do us a favor and don’t email us about the “2%” or fixed % risk rule anymore! You have your answer right here! The best way to gauge how much you should risk per trade is simply risking what you feel comfortable with; ask yourself if you can handle 10 losses in a row on your current risk amount per trade, if you can handle that and not become emotional or blow out your account then your risk level is probably OK. So, forget about risking 2% or whatever % per trade, this is a “deadly sin” because it WILL keep you in a rut once you hit some losers and it flies in the face of the fact that we never know what’s going to happen on the next trade. When you blindly reduce risk after every losing trade, this implies that you assume you are going to continue losing, which isn’t necessarily true! We want to measure risk in dollars, not pips or percentages.
2) Being a greedy idiot
Greed is one of the original “7 Deadly Sins”, and it’s no surprise that it’s a deadly sin in the trading world too, after all it’s human nature to become greedy when money or material things are involved. Most traders are no different from gamblers at the casino; they are all just chasing the ‘big win’. It’s an addictive game that gets in your blood and doesn’t get out until you ‘snap out of it’ somehow, usually from losing a significant amount of money.
It’s time to get real here guys, stop chasing the big winner on every trade… because more than likely it’s not coming. If you’re making a 1 to 2 or 1 to 3 risk reward on most of your trades, that’s great. It’s actually ‘professional standard’, and there’s absolutely NOTHING wrong with it! The longer you keep chasing the elusive ‘big winner’ on every trade, the longer you are going to continue to not take profits when they are staring you in the face, and the longer you are going to remain in your cycle of losing, breaking even, and taking tiny gains as the market comes crashing back against you. So, start being realistic and stop committing the deadly trading sin of being a greedy idiot.
3) Day-trading and scalping
In case you’ve been living in a bat-cave on some remote island for the last 4 years, you already know we don’t day-trade or scalp, in fact it’s safe to say we hate high frequency trading. One of the most common questions we get is “can you use price action to day-trade and scalp the markets?” The answer is yes, you certainly can, but you should expect to blow out your account if you do. I’m serious about that, the only people who have any business even attempting day-trading or scalping are people who are ALREADY trading for a living and who have thus fully mastered swing trading on the higher time frame charts.
This one is clearly a deadly sin because when beginning or struggling traders start scalping on a 5 minute or 15 minute chart, it literally is only a matter of time before they blow out their trading accounts. I think this is the sin that no matter how much we preach and tell people not to commit it, they just keep doing it until they have lost so much money that they either finally switch to trading higher time frame charts or give up all together.
4) Combining trading methods
We often get people emailing saying that they are combining a strategy they learned in my course with a “MACD” system or some other fill-in-the-blank indicator system that is really just clouding up their charts. The bottom line is that we do not ‘blend’ trading methods, it’s simply a case of you need to ‘let go’ of your glorious 4 hour MACD cross over system that you found on Forex Factory and move on to something logical and real. Most people who stick with trading long enough eventually figure out that they aren’t helping themselves by plastering indicators on their charts or learning some ‘hot’ new trading system that’s getting a lot of hype on some website. These are gimmicks folks, they sound really good, but in reality they are just wasting your time and masking over the reality of what it takes to trade successfully, and that is why combining complicated and messy trading methods with price action is the a deadly trading sin.
5) Cockiness and arrogance
Our next deadly trading sin is arrogance or cockiness, however you want to put it, many traders fall prey to this sin and it ends up costing them dearly. Time and time again we get people emailing us who are clearly failed traders making all the most common emotional trading mistakes, yet they seem unaware that they are even doing anything wrong and are puzzled as to why they are losing money. In other words, they are blinded by their own arrogance and they are playing some game of pretending they are a pro trader even though their account balance proves otherwise.
The first step to fixing your trading problems and avoiding all these trading ‘sins’, is to simply admit that you have a problem, and admit that you’re not doing the right things to be successful in the markets. Many traders can’t even reach this point because they simply cannot swallow their pride and their egos; they don’t want to face up to the fact that they are behaving like a gambler in the market, even though they know it in the back of their minds.
You have to be willing to ‘wipe the slate clean’, and be willing to stop pretending that what you’re doing is working and simply start over fresh. Being humble will go a long way in trading, as men this can be a problem because we tend to have a ‘need’ to be right all the time. This deadly trading sin of arrogance and cockiness is definitely more widespread amongst male traders than female traders. So, once again guys, it’s time to take a play from the ladies here and check your ego at the trading room door; it’s not doing anything for you but fogging up the reality of your own behavior in the markets.
6) Following exotic currency pairs
OK, I’ll admit it, even I’m still guilty of this one sometimes, in fact recently I lost 60 pips on a GBPNZD trade; a pair I basically never trade. So, if someone who’s been doing this for 10 plus years can commit a sin, you can too, hopefully I can be ‘forgiven’ of this one guys ;). I don’t care what you hear or what you think, the major Forex pairs are the best forex pairs to trade. There really is no reason to get caught up in analyzing 30 different currency pairs, because the major Forex pairs as well as gold, silver and maybe the Dow cash market, provide you with more than enough opportunities each month. Most traders end up looking at all the crosses and the exotic Forex pairs because they think it’s going to give them ‘more opportunities’ when in reality all it does is cause confusion, over-analysis, and over-trading.
7) Thinking too much (it’s bad for you)
This is the last of the 7 deadly trading sins and it’s perhaps the most widespread and the most damaging as well. Many traders love to over-analyze, over-trade, over-leverage, and generally just be over-involved in everything when it comes to their trading. Thinking too much and being over-involved in their trading gives most traders a sense of ‘control’ over the market that makes them feel better. That really is what it all boils down to. The problem with this is that you cannot be in control of the market, you can only be in control of yourself, AND how you feel has nothing to do with the outcome of your trades. The market does not give a crap about how you feel, your money problems, or that you’re trading with money you really can’t afford to lose. So, keep that in mind when you are sitting in front of your charts for 5 hours when you should be sleeping, ask yourself “Am I really doing valid and needed market analysis now or am I just being over-involved and thinking too much?”
Another problem that traders have with thinking too much is being afraid to trade or having problems with pulling the trigger on their trades. Whether it’s being afraid to enter a perfectly valid trade setup or being afraid to close a trade out, many traders experience ‘analysis-paralysis’ in the markets. This means they end up thinking in circles and ultimately end up taking no action because they flood their head with so many thoughts they literally become mentally paralyzed. Once you realize that you should be operating off of a trading plan that you have developed while not in the markets and while you were being objective and logical, things will get easier for you. The most important thing to realize is that you should not be thinking too much about your trades; have a plan of attack and follow it, don’t sit there and change your mind on every tick for or against your position.
These “7 Deadly Trading Sins” provided you with a look into some of the most common email questions that we get from traders, I hope that you gained some insight from today’s lesson and also realize that you’re not alone in experiencing frustration and losses in your trading. It primarily takes a simple adjustment of your attitude and expectations about trading to put an end to these 7 deadly trading sins and any others you might be making. If you want help in putting an end to these trading sins, and more in-depth training on the strategies and philosophy that I use to trade the markets with, check out my Forex trading course and members’ community, you will find it’s an invaluable tool to help get you on the track to successful trading, especially if you want to simplify and streamline your approach to trading the markets.
Good trading everyone, Nial
75 Comments Leave a Comment
Strong article! Thanks
nice article. have issues with no. 7 but am workin on it.thanks
What you have mentioned :
“I don’t care what you hear or what you think, the major Forex pairs are the best forex pairs to trade. There really is no reason to get caught up in analyzing 30 different currency pairs, because the major Forex pairs as well as gold, silver and maybe the Dow cash market, provide you with more than enough opportunities each month. Most traders end up looking at all the crosses and the exotic Forex pairs because they think it’s going to give them ‘more opportunities’ when in reality all it does is cause confusion, over-analysis, and over-trading.”,
is what we think most people won’t buy this view.
This view, however, is full of subjectivity. What we can’t
do well, does not imply others would follow suit. Thus, we should best not selling this idea to people as this is our view or experience. There are many people trading these pairs all over the world for they have well accustomed with the characteristics of the pairs they like.
Isn’t trading full of lots of subjective elements? Should we not attempt to remove them as far as we can as they are considered sins in the of trading world?
Just some food for thoughts.
I’m always agree with Nial. No matter what he said. For me that is the truth. I have learnt a lot using that idiot philosophy.
Yep. I’ve been practicing the all the strategies here… and successful with everything said up to date. Tried to use some exotic pairs, got blown up. Tried scalping- got destroyed. *gotta love my demo account!* Can’t wait until I have your theories engrained in my head and I can start a real account.
sir i have read all and got some clear view that i will follow in future trading.
But if a man is being pressurised from outside in trading he will not be succesful.
great. thanks…thanks…n thanks a lot,
I like your advice (for the most part), as well as your site as a whole, but your comment on not having a 2% rule is, in my opinion, not valid. Reading about many other successful traders, most of them seem to apply a rule such as this. For many it is much lower than 2%. It is an objective way to size positions and it ensures that you decrease position size during a period of drawdown when you’re trading poorly (most likely) and increase your position size when you are trading well. This is not my theory by the way, this was the consensus of all the traders in the book market wizards (one of the best trading books out there).
You created very good articles and shows human behaviour very hard to control without to follow the rule.
GREAT. I have traded 6 years with only minimaL SUCCESS. I envy newbies that don’t have to undo false belief systems.
I have been guilty of all sins at various times, but at the moment only sin in trading exotics. I do that because I am bored only trading 6 pairs. Honestly, it only takes me a few minutes at 5pm EDT to decide if there is a trade to take.
I also have a CCI strategy I like to use as confirmation — especially if I am considering a counter trend trade. Mostly it gives me more confidence if it agrees with pinbar at confluence point.
My advice is to trade ridiculously small and keep records to prove your account is growing before you increase lot size. You will have great weeks along with some “wash” weeks where profits=losses.
My problem is fear of increasing risk because I have lost accounts and developed a loser mentality. Also, I am a pensioner, and I can’t risk more than monthly “mad” money until I am very, very sure of my strategy and my skills.
Still, since using your wisdom for the past 3 months, I see measurable improvement and my hopes and confidence are building nicely
Thanks for your generosity and all you do for the “brotherhood” of 4X traders
#3, Day trading and scalping has cleaned out my account many times, but I’m happy to say that since I enrolled in your trading course I have been “cured” of this deadly sin!! Thank you!
Another wonderful and useful article Nial. Thank you so much.
Great article. I agree indicators can be confusing.
I like it
splendid! as usual
Useful lesson Nial (as always). I liked the ‘arrogance comes from ignorance’ comment. I have tried trading before and wasn’t successful, since then I have learned a few of life’s lessons about giving up control and accepting what I can’t change. Now that I have returned to the forex market it is easier for me to believe that I have no control over the market and that it is ok to be wrong; you can still be successful. Hopefully, with discipline and patience I will be more successful this time. Time will tell, but I suspect success first starts from within and radiates outward.
Thanks Nial…yes I am continually learning to control my temptations to not over trade, over analyse, over think or over risk my trades. LTTTM is and continues to be instrumental with keeping my trading simple.
Personally, keeping the bet risk roughly the same in dollars,during a streak stands out most within the seven you chose to address for the article. As a side note, it’s really inspiring to see improvement in all areas after joining LTTTM 2 1/2 years ago and really committing to your principles as well as the “unlearning” process.
All the best to you and family and friends…richy
verry good article
Nial…great summary of key trading issues…sure some things should be tweeked a little here and there to suit the individual…but 7 deadly trading sins in a nutshell none the less
thanks for your continued sharing
Nail, a very good article. Thanks for it. It helps a lot to decide inclusion or not of indicators. I agree, its better not having them!
thank you so much for this lesson last point always happens
with me when i trading, over thinking & analysis i miss that trade trigger now i”ll do better
Risk 2% or measure risk in dollars.
I think it doesnt matter either way. A crap system will send you to the poor house everytime regardless of your moneymanagement.I figure the 2% will keep you in the game longer UNTIL you find that winners edge. Then apply the risk in dollars. No matter what dollar amount you decide to risk its still some percentage of your account.
Formula for success.
bet small – prove you have an edge – then milk it .
:)sin 6 was my recent discovery too… perfect weekly pinbar closed above 8ema on eur/aud…pending entry on 50percent activated…but guess what…didt work out :)) it was so perfect so i kept adding to possition…but as i was really impressed by perfection of this pin bar, i failed to acknowledge it was near important resistance…as my gains for whole previous month kept disapearing…i found another great pinbar on daily on gbp/aud…and kept adding….so this exotic experience have cost me month gains in one day :)
Thanks for these points,,
BUT,,,, why a diciplined trader with a consistent system can lose 50% by risking 1-2%/trade?(have u mentioned how many losing streaks u need to have a 50% drawdown in that way?)
I think that’s not gonna happen if u have a proven system of atleast 60% hit rate & R/R=1:1 or 50% with R/R=1:2(even a random entry with a coin flip should make u money)
Sorry to Disagree!
Nial – you write the best articles on the net. Thanks again for a great article.
Hi Nials, spot on mate. You take the subject head on, tell it how it is and how it’s going to be, you don’t skip around the edges with vague references to the subject.
Nial: Sins 3 and 4 have been my past problems. I am new and will be looking to trade Daily signals with 4 hr entry’s. Just not sure which pairs I shold trade other than 4 of the most dollar cross pairs. Any sugestions to add to my research would be appreciated.
Have a great weekend.
Thanks Nial..These really make sense.
Hey Nial, great reading and great website!!! Only recently discovered your site and have devoured every page and video and am looking forward to purchasing your course very soon!!
Clarity and simple math rule the day!!
Thanks a lot,
Adam in ND
I started exactly as Fount Shults, trying to make 10+ pips a day on the 5/15 minute time frames, so first for me was #3. After consistently losing 10+ pips a day, I studied other methods, switched to the higher time frames and got struck down with analysis paralysis, #7. That slowed me down so much that even when I see a great setup I’m hesitant and miss the opportunity. Finally, having bought 3 good systems, I find myself doing what you describe in #4. Partly combining methods and partly trying to use different methods according to the market, time of day, how I feel and so on! I need to simplify, build confidence in what I see on the charts, rather than what an inidicator tells me, and spend less time glued to the screen. Thanks for the insight. :)
Well said !
Great Article Nial! I’m guity of #3 but I’m working on it. Thanks a lot.
Super article !
I am grateful again today because you touched most of my weak areas. For me a newbie, I think 4hr TF is good for me to trade. Thanks.
Every articles pointed all of mine what
I’ve been doing and it make me reflected.
Thank you and have a nice day Niel.
Thank you for the insight analysis,I personally take note of not risking too much.
Great lesson Nial, actually I encountered all the 7 sins you mentioned, but probably the most deadly for me are 2, 3. Sometimes I lost money because of 6. Thanks again Nial.
I am guilty of sin no. 3, I repent.
Remove bad habit..
Thank you Nial,The Bible says in James 4:17 “so any person who knows what is right to do but does not do it to him it is sin”. Have a wonderful weekend.
Thanks again for a really good summary of exactly the problems that I as newbie are faced with very often.
I changed to 4 hour charts and look for a possible entry and the go the the 15 min just to pin point the best entry. It works very well. Less “noise” more relaxed.
Hi Nial, as always a good read. I too have my own list of 7 Deadly Sins of what not to do, these are part of my Trading Plan, they are 1. Holding a losing trade in hopes you get back to even 2. Believing it cannot go any lower 3. Thinking a lose is only a lose when you sell 4. Following the Crowd 5. Trading against the Trend 6. Adding to a losing position 7. Selling your winniers and letting your losers run
My woes are sin 1 & 7 (particularly 7). Will address these once & for all.
Am definitely improving by embracing the NF philosophy.
all the point was happen to me at the begging.
another brilliant article, Nial. Perfect timing for me and a good reminder of sins/errors I need to keep in-check! Esepecially the sin of being a greedy idiot, which I thought I had mastered. Had a GBP/JPY short position yesterday, which if I had set a 1:2 reward target rather than thinking I could get more would have got me out at 2R profit just hours before this morning’s price rocket. So I got a -1R loss instead!!
You have always been straight to the point. Thank you a lot.
another brilliant article, Nial. Perfect timing for me! I needed to read the list of sins. Thank you.
Thank you for the advice,I am guilty of a few of those.
I blew out 2 accounts because of it
I have since being in and out of profit and now I am
re-adjusting my trading system once again.
Thank you once again your tips are just fantastic
Keep up the good work Nial
Thanks Nial. Indeed I am guilty, 4 out of 7 as far as I am aware of as well as being able to admit it. I guess something of a major step if I was in AA program. Although a paradox still stands in my mind; in a way of gaining experience through what doesn’t kill you first, makes you stronger. Something like an addiction or personality flaw where rock bottom has to be achieved first in order to find a strong catalyst for change. For myself the reason I got into trading was due to curiosity, challenge, mastery and financial security. It’s this very dream/desire that has time and time again got me smashed up into a wall, just like your illustration of an aspiring Market Car champion, buying an F1 and then setting out to self learn himself to drive the thing. Oops! Dam! that’s going to be expensive…! It then occurs to me the body shop and mechanics are making more money than I am.. Indeed how many smashes does it need to be before…?
Guilty of all – especially the last – No.7
That’s why I am here !!
When I first started trading, I was told that day trading was the way to go. “Just gain 10 or 15 pips a day,” they said, “and you will double your account in less than a year.” I have lost several thousand dollars trying to make just 10 pips a day on the five and fifteen minute charts (even tried the one minute chart).
The scalping method has also trained me to look at the chart too many hours a day and think too much.
Your price action trading on the daily chart has kept me out of many trades. Thank you.
your Lesion is very useful
Congratulation to Your Work
Nial, You are the best mentor!
If someone here has not yet bought your Forex Trading Course should do that immediately!
Good writing as always. There is only one point I debate. I spent 2 years with higher TFs (H4, D1). They just did not work for me. Analyzing on H1 and looking for setups on M5 around the main turning points then helped me out. Roughly one trade each day. Is it over-trading? I am not sure. The main issue is let the winners run to 2,5x or 3x.
LOL @ the 4 hour MACD cross system. Great stuff as usual Nial. I used to look at 20+ currency pairs thinking I’d have more opportunities but then narrowed it down to just 10 which is more than enough. Thanks again for another nugget of wisdom.
Aaah the budha trader. All those points are so very relevant and have been on the top of my question list. There are very few books I read, and fewer people I listen to, you are one. Thank you for your generosity, clear, simple, logical information. Thanks!
Thank you, Nial. Finally I see your point in dollars risk vs. percentage risk and it does make sense mainly from an emotional point of view. As for greed, it’s simply a nasty beast very hard to handle : )
Hai Nial this resembles that given by HE during Mount sermon.
As them we too happily receives but could not practice it.
#1 AND #7 HAS BEEN MY MAJOR SIN .THANKS FOR SENDING ME THE LIGHT.WISH U A NICE WEEKEND
Nial, are you talking about me?
Thanks so much for this article.
Another excellent article. I personally see my self in a bit in the 6th sin, but working on it very well. Keep doing this work Nial. I have not enough words to thank you. PS: keep the fingers crossed for me, because from 9.9.12 I am going to demo trade and from 1.1.13 real trading with mini lots for the start.
Josef from CZE :-)
Haven’t commented or contacted you since doing your trading course but just a quick note of thanks. 1 of the reasons I have become a member is because your simple approach to trading struck a cord with me. I only did my 1st trading course Oct 2011 and to that point did not know what FX was.
Have paid some serious money and have fast tracked myself into trading to manage my self managed 1 mill + super fund. Went live in late Jan this year and have only used 2k of my 10k starting account (so far) bedding down a trading stategy that fits my available trading hours. Have attemped all trading styles and time frames just for the experience and after all the dust settled, found the daily was the most reliable easiest and least time consuming to trade. Candle Charts and Simple Price Action with 2 emas for trend confirmatiom using just the majors + a couple of crosses is were I landed. I them found your site and it was a breath of fresh air to see I had found an Experience Trader mentoring similar ideas. I still have a long way to go, I now, (as you have quoted) have the knowledge, but now need to put it into practice and be humble and confident in my trading plan and gain consistancy.
Thanks once again and keep the knowledge coming.
Your 2% “sin” is an eye opener.
Thank you for a different perspective.
Excellent article Nial, your insight always amazes me! Over the past 3 years I am guilty of all 7, and still working on a few!
Thanks Nial, your price action trading approach has trully changed my way of trading.
Good lesson Nial… guilty of a few of them! Been a greedy idiot more often that I want to!!
super article !!!
arrogance or cockiness
Great article as usual Nial!
#1 and #7 have been my issues in the past, especially #7, but I’m on the right track now.
Very Nice one Master, I cant thank you enough for what you doing for us new Traders. Have a lovely W/End
Well said Nial! This should cut out alot of emails that people want answered, that bother you.I personaly use a higher percentage to enter trades and have a fixed percentage on the PRICE to place a stop. Also I literally dont use any indicators on my charts other than a specified number on my ATR, and I divide the figure by a percentage. All of my trading is based on MATHEMATICS, which is an exact science, and is beutiful to see it repeat and unfold. Why? Because human nature never changes!
Good stuff Nial.
Hi Nial, just wanted to say thanks for your reports they are so good. I spent along time trying to trade smaller time frames with some success but no consistancy. Am now trading 4hr/hr/15 charts, am less active in the market but more pofitable and sit through far less volatility on entering.
A huge thanks once again.