What Traders Do To Ensure Their Own Failure: The 5 Deadly O's of Trading

Did you know that the top five reasons why traders fail are all self-inflicted？

Many traders unwittingly harm their own trading and aren't even aware of it. They have only themselves to blame if their account reaches zero.

Although it may be too late for these traders, it is not too late for you.

We want to make sure you don't have any of the same blind spots as us, and that you don't end up with a blown account.

We name these negative variables the “O's of Trading” to make them easier to remember, and there are five of them.

The O's have even inspired a keto-friendly cereal.

This figurative cereal has been consumed by a large number of traders. Even vegan traders are welcome. While it seems to be wonderful, you should avoid using it in your trader diet if you want to boost your chances of success.

What do the five “O's” stand for？

• Overconfidence

• Overtrading

• Overleveraging

• Overexposure

• Overriding Losses must be avoided

Let's take a closer look at each “O.”

Overconfidence

Overconfidence isn't just a sensation of being able to handle everything. Overconfidence is defined as an overestimation of one's own trading abilities.

Being a good trader necessitates a high level of self-assurance. You're more willing to take chances or hunt for opportunities when you're confident.

It's one thing to believe that your trades have the potential to be profitable; it's quite another to believe that you know everything there is to know about the markets and that you can never lose since all you do is win. DJ Khaled isn't you.

While confidence is important, having too much of it can be detrimental.

The overconfidence effect is the name for this phenomena.

The overconfidence effect is a cognitive bias in which a person subjectively believes his or her judgment is better or more dependable than it actually is.

Basically, when you have a high level of confidence in yourself, you have a higher opinion of yourself than an objective and sensible person (who isn't your mother) would have of you given the same set of circumstances.

Overconfidence manifests itself in three ways, according to psychologists:

• Overestimation

• Overprecision

• Overplacement

The tendency to exaggerate one's performance is known as overestimation.

Overconfidence in one's knowledge of the truth is known as overprecision.

Overplacement is a comparison of your performance to that of another person.

To put it another way, overconfident people think they're better than everyone else and overestimate their knowledge and abilities.

If you ask a group of people to estimate their own driving ability, for example, you'll find that the vast majority consider themselves to be above-average drivers!

Where are the average drivers if everyone is an above-average driver？

You must take time to properly understand yourself and what you are capable of achieving in order to limit the effects of the overconfidence effect.

You must be conscious of your limitations and which opportunities are unworthy of your time and effort.

Above all, you must ALWAYS examine the chance that you are mistaken, listen to fresh facts, and recognize when to alter your view!

To trade, you must have confidence, but this must be matched by intellectual humility.

Excessive trading (including Revenge Trading)

Trading too often, taking unusually large deals, and/or taking uncalculated risks are all examples of overtrading.

Successful traders have a lot of patience. Because high-quality setups take time to manifest, they must be patient and wait for confirmation.

It makes no difference whether the setup takes two hours or two weeks to complete.

What counts is that they protect their capital, therefore they will enter just when the odds are more in their favor.

You'll be able to tell if you're overtrading.

You are GUILTY of overtrading if you conclude a deal at a loss and deep down believe you should not have taken the trade.

Do you find yourself looking at lower time frames like the 5-minute chart and “discovering” better trades there when you're supposed to trade from the daily chart？

Do you ever find yourself gazing at charts for hours on end, attempting to “force” a trade with a “good enough” setup？

Overtrading occurs when you spend too much time staring at charts because you get prone to falling into a trance when looking at so much “price movement” (and indicators) that magical setups begin to materialize, which are actually MIRAGES!

Trading in Retaliation

Allowing your emotions to influence your trading results is risky.

When it comes to trading, the mind should always take precedence over the heart.

You can be tempted to “revenge trade” if you incur a large loss, or a series of losses, in a short period of time.

You wish to “return to the market.”

When you rush back into a fresh trade shortly after sustaining a loss, you're doing revenge trading because you feel you can rapidly turn the loss into a profit.

When you start thinking like this, your mental state becomes subjective. You're more likely to make more trading blunders, which means you'll lose even more money.

How do you stay away from revenge trading？

• While trading, be totally present and concentrated.

• Check to see whether you're in a good mood and aren't experiencing any bad feelings like anxiety, indifference, fear, greed, or impatience.

• Maintain a trading strategy and stick to it! Always trade in a systematic fashion. When you enter or are in a trade, there is no room for haphazard improvisation.

You must think long-term if you want to succeed as a trader.

Don't get too worked up about a single setback, or even a couple of setbacks in a succession. Maintain a laser-like focus on your trading performance in the months and years ahead.

It's a common misconception that the more you trade, the more money you'll make. However, the inverse is true.

Trading is a patient game.

Traders who wait for good setups and then sit on their hands are the ones who will make money in the long run.

Concentrate on the procedure. It's not about the money.

Overleveraging

Leverage in forex trading refers to the ability to open and handle a significantly larger trading position with a small quantity of capital in your account.

Your broker may, for example, allow you to start a $100,000 position with a $1,000 deposit. This is a 100:1 leverage situation.

The benefit of applying leverage is that you may increase your profits with a small quantity of money.

The disadvantage of using leverage is that it magnifies your losses and can quickly wipe out your account!

A minor price swing can wipe out your entire account balance when trading with excessive leverage.

The higher the leverage you apply, the more volatile your account equity will be. The majority of the time, you'll be faced with a margin call.

Good luck keeping your emotions in check and not letting them effect your judgment while your account equity is bouncing about due to your highly leveraged investments.

When this happens, no one will want to be around you.

You'll give your transaction “space to breathe” and protect your trading capital if you trade with little (or no) leverage.

You'll be able to accommodate larger stop losses while limiting your risk, for example.

The larger your leverage, the higher your risk on each trade, and the more likely you are to make irrational decisions.

It's critical to understand the relationship between leverage and account equity because it defines your genuine leverage.

Here's a report from a well-known forex broker that shows the percentage of profitable traders based on average actual leverage.

As you can see, as genuine leverage rises, profitability falls dramatically!

Only 17 percent of traders utilizing 25:1 leverage or greater were profitable, compared to 40% of traders using actual leverage of 5:1 or lower.

The majority of skilled traders use relatively modest actual leverage, rarely exceeding 10:1. That's how they keep themselves in the game.

Regardless of your broker's leverage level, you can replicate these lower leverage levels by simply putting additional money into your account and controlling your risk with correct position sizing.

Use a leverage ratio of 10:1 or less.

At any given time, only risk 10% or less of your account balance. Never let the total value of your open trades exceed ten times your account equity.

Divide your trade size by your account equity to find your true leverage on a single trade.

If you start with $5,000 in your account, a 10:1 leverage means you can only open positions worth $50,000 (or 5 mini or 50 micro lots) at a time.

The lesser the leverage, the less risky it is. A 2:1 leverage, for example, means that you can only open positions worth $10,000 (or 10 micro lots) at a time.

If you want to be a long-term trader, you should utilize as little leverage as possible.

Having access to significant leverage does not imply that you should use it.

Try to start trading with ZERO leverage when you first open your live account.

If your trading account has $5,000, for example, don't open any positions larger than $5,000 (or 5 micro lots) at a time.

With practice, you'll be able to determine when and how much leverage to employ to assist you achieve your financial objectives.

Trading with CAUTION should be your top focus when employing any amount of leverage.

Excessive leverage reduces the likelihood of profitability.

Overexposure

Always be conscious of your RISK EXPOSURE when you have many positions open in your trading account, each of which consists of a different currency pair.

Trading the AUD/USD and NZD/USD, for example, is almost always the same as having two identical trades open because they move in the same direction.

Even if both pairings have two excellent trade settings, you might not want to take both.

It might be better to choose ONE of the two setups instead.

Trading in multiple pairings may make you think you're spreading or diversifying your risk, yet many pairs tend to move in the same way.

As a result, instead of lowering risk, you're increasing it!

Unknowingly, you're putting yourself in even more danger.

This is referred to as overexposure.

Unless you intend to trade only one currency pair at a time, you must grasp how different currency pairs move in respect to one another.

Currency connection is a topic that you must grasp.

Currency correlation is a statistical measure of how two currency pairs move in the same, opposite, or completely random directions over time.

You should understand how currency correlations can affect the amount of risk your trading account is exposed to.

If you don't know what you're doing while trading many pairs in your trading account at the same time, don't be astonished if your account balance plummets!

Overriding Stops

Stop losses are pending orders that effectively finish out your trading position(s) whenever losses reach a certain level.

It may be difficult for you to admit you're wrong mentally, but sacrificing your pride can help you stay in the game longer.

Do you have the mental fortitude and self-control required to stick to your stops？

What typically differentiates the long-term winners from the losers in the midst of battle is their ability to objectively pursue their set strategies.

When the agony of loss kicks in, traders, especially the inexperienced ones, sometimes question themselves and lose their perspective.

“I'm already down a lot,” negative ideas come. It's probably best if you just hang in there. Perhaps the market will turn around right now.

Wrong!

If the market has hit your stop, your motive for trading has expired, and it's time to go.

Do not increase the width of your stop.

Worse yet, do not override or remove your stop and simply “let it ride!”

Increasing your stop will simply increase your danger and your LOSS!

If the market reaches your predetermined stop, your trade is complete.

Accept the blow and move on to the next chance.

Widening your stop is essentially the same as not having one at all, and it makes no sense to do so!