Did you know that the five deadliest factors that cause traders to fail are self-inflicted? Many traders self-sabotage their own trading and may not even be aware they’re doing it. When their account goes to zero, they have nobody to blame but themselves.

While it might be too late for these traders, fortunately, it’s not too late for you. We want to make sure that you don’t suffer from the same blind spots and can, hopefully, avoid sharing the same fate of a blown account.

To make it easier to remember, we call these negative factors, the “O’s of Trading“, and there are five of them.

What are the 5 “O’s”?

Overconfidence
Overconfidence isn’t simply the feeling that you can handle anything. Overconfidence is characterized by an inflated belief in one’s own trading skills.

Confidence is critical in becoming a successful trader. When you’re confident, you’re more likely to take risks or look for opportunities.

However, it’s one thing to believe that your trades can potentially be profitable, but it’s another thing to think that you know everything about the markets and that there’s no way for you to ever lose because all you do is win.

While confidence is necessary, too much confidence can have negative consequences.

To minimize the effects of the overconfidence effect, you must take time to truly understand yourself and what you are capable of achieving. Most importantly, you must ALWAYS consider the possibility that you are WRONG, to listen to new evidence, and to know when to change your mind!

Overtrading (Including Revenge Trading)
Overtading is when you are trading too frequently, taking extremely large trades, and/or taking uncalculated risks.

Successful traders are extremely patient. Quality setups take time to materialize, so they remain patient and wait for confirmation.

It doesn’t matter if the setup takes two hours or two weeks to take shape. What matters is protecting their capital so they will wait until the odds are more in their favor before entering.

You will know if you are overtrading. If you close a trade for a loss and deep down, you feel like you shouldn’t have taken the trade, then you’re GUILTY of overtrading.

For example, when you’re supposed to trade from the daily chart, do you find yourself still looking at the lower time frames like the 5-minute chart and “discovering” better trades there?

Do you find yourself spending hours staring at charts and trying to “force” a trade with a “good enough” setup?

Revenge Trading
Letting your emotions get to you regarding your trading performances is dangerous. When it comes to trading, the head, not the heart, should be in charge.

When you suffer a large loss, or a series of losses, within a short span of time, you might be tempted to “revenge trade”. You want to “get back at the market”.

Revenge trading is when you jump back into a new trade right after taking a loss because you believe that you can quickly flip the loss back into a profit.

When you start thinking like this, your state of mind is not objective anymore. You become more prone to making even more trading mistakes, which results in you losing even more money.

Trading is a game of patience. Traders who wait for quality setups and sit on their hands in between are the ones who will end up profitable in the long run. Focus on the process. Not on the profits.

Overleveraging
In Forex trading, leverage means that with a small amount of capital in your account, you can open and control a much larger trading position.

For example, with a $1,000, your broker might allow you to open a $100,000 position. This is 100:1 leverage. The advantage of using leverage is you can magnify gains with a limited amount of capital. The disadvantage of leverage is that you can also magnify your losses and quickly blow your account!

Overexposure
When you have multiple positions open in your trading account and each position consist of a different currency pair, always make sure you’re aware of your RISK EXPOSURE.

For example, on most occasions, trading AUD/USD and NZD/USD is essentially like having two identical trades open because they usually move in a similar manner.

Even if there are two valid trade setups in both pairs, you may not want to take both. Instead, it might make more sense to pick ONE out of the two setups.

You might believe that you’re spreading or diversifying your risk by trading in different pairs, but many pairs tend to move in the same direction. So instead of reducing risk, you are magnifying your risk! Unknowingly, you are actually exposing yourself to MORE risk. This is known as overexposure.

Unless you plan on trading just one pair at a time, it’s crucial that you understand how different currency pairs move in relation to each other. You need to understand the concept of currency correlation.

Overriding Stops
Stop losses are pending orders you enter that effectively close out your trading position(s) when losses hit a predetermined price.

It might be psychologically difficult for you to acknowledge being wrong, but swallowing your pride can keep you in the game longer.

In the heat of battle, what often separates the long-term winners from the losers is whether or not they can objectively follow their predetermined plans.

Traders, especially the more inexperienced ones, often question themselves and lose that objectivity when the pain of losing kicks in. Negative thoughts appear such as, “I’m already down a lot. Might as well hold on. Maybe the market will turn right here.” Wrong!

If the market has reached your stop, your reason for the trade is no longer valid and it’s time to close it out. Do not widen your stop. Even worse, do not override or remove your stop and “Let it ride!”

Increasing your stop only increases your risk and the amount you will LOSE! If the market hits your planned stop then your trade is done. Take the hit and move on to the next opportunity.

Source: Baby Pips

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