Every trader has got one.
Whether it is big or small, every trader has his/her share of this important trademark.
Whether you’re new to trading or has been trading the markets for decades, chances are you have experienced one or two or more of these.
Of course, we’re talking about horror trade or trades that result from committing a trader’s sin. A trade that has gone horribly wrong it gave you the creeps. Or it caused you some sleepless nights. And worst of all, it could have cost you a few hundred dollars (ouch!).
In this post, we will look at some actual horror trades and the trading sin behind each (based on experiences shared by different traders). The idea is to learn from these experiences and avoid making the same mistakes/sin again.
We will also dig deep into the lessons learned from those trading mistakes and how each trader has changed his/her method for the better.
Chris (not her real name) heard about forex trading through her social media network of friends. She got interested right away and wanted to try her hand.
Like other traders who are new to the markets, she did the right thing by opening a demo account first. And to familiarise herself with the trading platform she started reading and following some ‘expert’ traders and their suggestions.
Though she didn’t have a good grasp of the forex market yet and being very new to trading, she still had to develop a solid understanding of the markets and the currency pairs.
“I started following the experts’ suggestions on which pairs to trade and everything they said, but I didn’t really understand it,” she said.
After a month of using a demo account where she saw her account balance rising, she decided to open a live account, confident that she can convert those expert insights into a healthy live trading balance.
What she didn’t realise was that trading on a demo account is an entirely different thing compared to trading a live account.
“I didn’t have a solid trading strategy. I didn’t have risk management in place. And I was not psychologically prepared to trade. So, when my live account started losing money, I didn’t know what to do,” she added.
When her account blew up only after two days of trading, Chris realised that she needed to do more study. She needed to know how the market works and not to trust in ‘expert’ opinion only.
“The biggest lesson I got from that experience is that I need to know the market better. I need to come up with a strategy on when to enter and exit the trade. I also need to work on my focus when trading and to be psychologically prepared, particularly when faced with a loss,”
“I need to keep on studying and learning the markets. And I am doing that now,” she said.
Given all the distractions around us, many traders find it difficult to focus. And this could be challenging especially if markets are moving fast.
Whether a trade is moving for or against you, lack of focus when trading can cost you some money.
And this is what happened to LI (not his real name).
He planned to do a scalp trade on the XAUUSD (Gold) when he thought he saw a good trading opportunity.
But because he wasn’t focused on his trading, he opened a GBPUSD trade instead. And without double-checking the trade he opened, he found out he opened a wrong trade only after 10 minutes into it.
And by that time he was already down 10% of his capital. Still in a bit of a shock that he opened a wrong trade, he didn’t close it right away hoping that it would come back to his favour. It didn’t.
It was only after he’s lost 25% of his capital that he decided to close the losing trade.
“That’s a terrible mistake and I realised I needed to focus when I’m trading. I need to be familiar with the trading platform and the instruments I’m trading to make sure that I’m placing the correct trades,” he said.
“I also need to be more brutal, decisive and quick in cutting losses,” he added.
As the term suggests, stop-loss orders are orders to let traders stop or cut losses when a trade goes against them.
Stop-loss levels can be set manually by giving yourself a reminder at what level you want to exit a trade at a loss. Most trading platforms also now offer automatic stop-loss orders or levels that can be pre-set for each trade.
But for some reason, not every trader uses stop-loss orders.
David W (not his real name) failed to use stop-loss order during one of his trades. And he immediately realised his mistake. His account was wiped out in one night despite his confidence that he was in a good trade.
“I bought at a pinbar and went to sleep. I felt bad when I woke up when I found out I forgot to place a stop-loss order,” he said.
High-impact events are one of the major movers in the forex market. Whether it’s geopolitical tension, political events, central bank decisions or economic announcements, it is best that traders be aware of high-impact events because they can cause massive price movements.
As a trader, if you’re not aware of these high-impact events or if you choose to ignore them, there’s a good chance that your trading account will be affected.
This is what happened to JJ (not his real name) when he was just starting to trade the forex market.
Unaware of the impact of big breaking economic news on the currency markets, he opened a trade on the EURUSD at the opening of the New York session. He went to short the EUR ‘confident that it was hitting a resistance level.’
To his surprise, he saw the chart moving and the EUR candle moving up and down and up again. The trade went against him and the EUR moved further up and breached the resistance level.
“I did not cut my losses right away. In my mind, I was insisting it will still go down. But then I realised I was hoping for something impossible,” he said.
He decided to cut the trade when his account showed it was already $120 down.
“I got into the trade thinking that it would go my way. But it did the opposite and breached the resistance level,”
“What I learned is that I need to be more strict before I open any trade. I need to know what’s happening in the markets particularly when there are high-impact events that can affect my trades,” he said.
Most professional traders and those who have been in the markets for decades always emphasize the need to find your own trading style. Like any other activities or goals in life, trading is not a one-size-fits all.
One trading style may work for you but may not work for another trader. Similarly, what could have been successful for one trader may not work for you.
When it comes to trading, finding your own style, your own strategy, your own rules is important. You have to personalise your trading to fit your personality.
YPC (not his real name) made the mistake of not personalising his trading. Instead, he listened and copied a friend’s strategy.
While copying or following another successful trader’s strategy may work for a period of time, it is not the best strategy for you particularly if you don’t know the reasoning behind the strategy.
“What happened was I tried out a strategy recommended by a friend. After trying it for merely a week, I took a bigger trade and for 3 days all the trades went against me and the strategy didn’t work,” YPC said.
He added that what made the mistake worst was that he took on bigger positions thinking that the risk-reward ratio was in his favour and it was a great ratio.
“It ended up as a nightmare as all my stop losses were triggered on both sides of the trades and I ended up losing all my profits and my capital went down by 30%,” he said.
It’s been said that stop-loss orders are there to take the emotion out of your trading. And this is true because setting up an automatic stop-loss order before you enter a trade can be an effective way to cut and exit a losing trade. Even when you’re not in front of the screen, having a stop-loss in place can save you a lot of money.
BG (not his real name) found out about the importance of using stop-loss orders in one of his trades. At that time he had 3 open positions. Confident that the price of the EUR/JPY will go up, he put a take-profit order but did not bother to put a stop-loss order.
Feeling happy and confident with the trade and expecting to take profit when his level was hit, he went to bed expecting to see profits the next morning.
But his expectation didn’t happen. Instead, his trade went down and his account was 75 down the next morning.
“I didn’t know what to do when I saw that my trade went the other way.. I started sweating and I felt so hot even that early in the morning,” he said.
He immediately closed off all his open positions and tried to recover from the flush of heat and sweat that day.
“That’s a real scary trade for me and it taught me to always use stop-loss orders. No matter how confident I am, a trade can go against me. I need to be more disciplined in using risk and money management in my trading,” he said.
That experience also taught him to limit his exposure in every trade.
“I learned the hard way that I need to risk only what I can afford to lose.”
Like many other traders, BG said the experience taught him the importance of controlling one’s emotions – greed, excitement and overconfidence – which can affect your trading decisions.
“I’ve already rehabilitated myself not to be greedy. Emotional excitement and overconfidence can burn you out of focus on your trading discipline,” he said.
A veteran trader with several decades of experience once told a newbie trader “I wish your first trade will be a loser.” While that is not the most encouraging and inspiring piece of advice to give to a budding trader, it carried a lot of important messages.
The fact is no trader wants to lose. But it is also a fact that losing trades can force traders to stop, think and analyse where they went wrong. It is the losing trades that can deliver the lessons to improve one’s trading.
In the case of SMM (not his real name), the joy of getting into two winning trades when he was just a newbie set him up for overconfidence.
“I started trading without doing any research. I skipped the demo account as I was confident of getting into some winning trades,” he said as he recalled his mistake.
He placed two trades on the GBP/USD pair and it went in his favour. Naturally, he was happy with the result and it boosted his confidence all the more.
But when a trade went the other direction, he didn’t know what to do nor how to stop the losses. Not knowing anything about stop-loss orders, he didn’t do anything to cut his losses.
Instead, he put on more trades as the prices moved against him. In his mind, if he put more trades he would make more money when the prices turn in his favour.
“But prices didn’t turn in my favour. I held the trades for the day and I stayed glued watching the screen until my account was blown. That was a hard lesson for me,” he said.
“From that day I made a promise to myself I will never ever blow an account anymore.”
This experience taught SMM the importance of reigning in his emotion of greed. It also honed in the fact that over-trading/ revenge trading can be more costly.
But for him, the most important lesson was to learn from the mistake.
There is no doubt that the availability and accessibility of technology have made a lot of impact on trading. With technology traders now have access to interactive charts, automated indicators and even automated trade set-ups.
Today, even people who don’t know anything about trading or the markets can use Expert Advisors (EAs) to get into trading.
While EAs can be effective trading tools and some traders have used them successfully, EAs also have limitations.
RV (not his real name) learned about the downside of using and relying too much on EAs the hard way. He was only one week into trading when he discovered EAs. Thinking that it could be an effective tool to help with his trading, he bought an EA and followed the instructions of the EA developer.
As soon as he was set-up, he opened six trades using the EA. The initial trades delivered the expected positive results. The EA seemed to be doing what it was supposed to do. Confident and happy with the initial results, he left the EA running into the night.
But when he checked the trade a bit later, he saw his drawdown increasing rapidly. He started to panic. This was made worse as he saw the EA opening more trades that were going against him.
On top of that, technology failed him at a critical moment. His internet connection slowed down and he could not do anything much to stop the trades.
Stressed out and feeling helpless about the situation, he didn’t sleep well that night.
“I didn’t know what to do so I just left it there but I can’t go to sleep. I kept on checking my mobile MT4, at 10 PM my drawdown is already 30 per cent and still the losing pairs keep on opening new trades in bigger lots. When I woke up in the morning and check my MT4, I got a shock. My balance was zero. The EA wiped out my account overnight.”
After gathering his thoughts on what and how did it happened, he found out two things. One is that the terms and conditions of the EAs were not met. And there was also a big news event that night that impacted his trade.
“I got some important lessons from that experience. First, manual trading is always better than automated trading. Second, consider the news and other high impact events always. Third, when purchasing an EA, don’t get easily enticed with some advertised trading results. Ask for a detailed breakdown of wins and drawdowns. Look for a solid track record of trading experience behind the EA.”
Chances are you have been guilty of these trading sins at one time or another.
But given the tough lessons – capital losses, account wipeout, sleepless nights and stressful situations, it pays to read them over and over again and to learn from them.
Most importantly, try not to commit any of them again.
The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.
Volatile currency pairs can provide both positive and negative trading opportunities. Learn more about forex volatility and the most volatile currency pairs, taking advantage of their price movements.