How to Avoid Making this Common Trading Mistake

I have a problem with most trading books.

They give you all the technical tools, but that’s not the sum total of trading.

Trading markets is more than just charts and trend lines.

To trade markets successfully, you have to take in the broader picture.

And it has to be sustainable in your life over the longer term.

Take a break from the market

Looking at markets 24/7, trying to trade every daily move, is unlikely to be a winning strategy. You might keep that up for a short period of time. But trust me, it’s not sustainable over the longer term.

If you’re constantly looking at markets, you’re not going to be at your best.

Your decision making suffers. From time to time you need to take a break from plotting your next move.

It sounds a little counter-intuitive. You may think that, to get better at trading, you need to be thinking about and looking at markets all the time.

But you need to allow the mind to clear the clutter and gain a new perspective.

And it’s not just me saying this.

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One of the world’s most famed and talked about traders, W D Gann, says similar.

For example, in How to Make Profits in Commodities, he writes…

TIME TO STAY OUT OF THE MARKET: This is something important for everyone to know. ……Long periods of rest and relaxation protect your health and help your judgement which will result in profits later.’

This aspect of taking a break was an important point for W D Gann. He repeats a similar message in chapter 7 of his book Truth of the Stock Tape. Here Gann gives four essential qualities needed to make a success in trading.

And one of those essential qualities is health and rest. This is what Gann prescribes…

At least twice a year a man should close up all of his trades, get entirely out of the market, and go away for a vacation or stay away from the market and rest up. Let your mind rest and your judgement get clear. The man who continually sticks to any business too long without a rest or change gets his judgement warped. He gets in a rut and sees things from a one-sided point of view.

Aside from taking a break at least twice a year, Gann suggests you can also take your cues from the market. Let the market lead you, as when you need to rest. This is one rule every trader should follow, he says.

Now when the world’s most famed trader says something like that, perhaps it’s time to sit up and take notice.

I hand it over to W D Gann, here’s what he says in his book the Wall Street Stock Selector

‘….one rule that every trader should watch and follow is, just as soon as he makes two or three wrong trades after a long series of profits, he should quit the market and take a rest.

Get away from the market. Allow plenty of time for his judgement to clear up. Then when he thinks he is right again, make a start on a small trade. If the first trade goes against him, he should quit again and stay away. Then when he starts again if his first two or three trades turn profits, he can then press his luck and expect a period of success, until he sees another sign that the market has turned against him, when he must again get out of the market.

Trading aside, you’ll notice there are times in your life when things just aren’t going well for you. Things usually come in threes is a well-worn expression, but it highlights what I mean. There can be periods in one’s life when things aren’t working so well.

You don’t need to know the reason behind that. Just know that it happens.

And these are times you should be out of the market. If two or three trades go against you in a row, take that as a signal that you need to take a break and freshen up.

Stop trading for a week or two.

I know it sounds a little counter intuitive. As traders, we feel like we need to be in the market all the time or else we’re missing out on the opportunities.

But you do need to take a break from time to time.

But most don’t stop, they keep trading because they are addicted to the excitement of the game.

They feel the urge to trade, just as alcoholics feel the urge to drink. They make impulsive trades and try to trade their way out of a hole.

The market gives you plenty of opportunities to crash and burn. And overtrading like this is a major cause.

You just have to be a little attentive as to when the tide might be turning. Otherwise, you’ll end up giving all your hard-won profits back to the market.

As traders we’ve all had the experience.

But here, Gann gives you a strategy to avoid this most common trading mistake.

Aside from taking breaks at least twice a year, there are other things you can do to help your day to day trading.

Have an interest outside of the market

Sitting all day in front of a computer screen, as we know, is just not good for us. For many that is exactly what trading is. Getting some sun and going for a walk just helps your thinking ability. It gives you some clarity in making those trading decisions.

And besides, no one’s going to tell you that adding some walking to your daily routine is a bad thing. It gets the blood flowing and for your trading, it allows your decision making to be at its best.

Here’s another little tip, which sounds like boring advice.

You should have some interest outside of markets. Find time for something which is different to trading.

Because if thinking about trading is all you do with your time, then your whole life seems bad when your struggling with it.

You can and should have a life outside of markets. So, if you’re having a hard time trading, there is other areas in your life which can be going quite well or are very pleasant for you.

Also, you want to have some sort of picture of what your ideal trading life might look like. If it’s sitting in front of a computer screen 12 to 16 hours a day, trying to catch every daily move, then go for it.

But that won’t be the ideal for many. And you can have a life outside of markets if you leave the daily chart behind. Trading a moving average on a weekly or monthly chart takes very little of your time.  And it’s very simple to do.

The market should be freeing you up to do what you want in life, not putting a ball and chain around your ankle.

Kind regards,

Terence Duffy,
Chartist, Phil Anderson’s Time Trader

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Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come — which he details in Cycles, Trends and Forecasts.

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