Having a good trade idea is a fantastic position to be in, whether it comes from your own analysis, your own trading plans, a signal provider, a mentor, or anywhere else, a good trade idea is a good trade idea. Now that you have it, what do you do with it? You have it, you place it, and…. It goes wrong, you lose the trade. Why?
There are a number of different things that may have gone wrong, so we have come up with a few different things that you may have done that can cause a good trade to go bad.
#1 – Timing: A good trade is a good trade, but it won’t be a good trade forever, the markets are constantly moving and so are the entry and exit positions. More often than not you will head online and see someone posting analysis, the trade looks good, their analysis looks spot on so it must be a good trade right? Well at the time, yes, but we may be an hour or more later than when the analysis took place, so placing that trade now will put us in a position which is very different from the one suggested. It is important to take action as soon as the opportunity comes up, even with your own analysis, you are analyzing for that period in time and not for the future, so if you have the trade, ensure that you take it in a timely manner.
#2 – Lack of preparation: No matter where the trade idea comes from, it is important that you make the right preparations before actually taking the trade. Have you looked at the history of the pair? Has it changed since coming up with it? What is the price action like? Questions like these are required, you need to know the answers and they all need to point to the trade being active before actually making the trade. Do your own analysis on someone else’s trade signal and double-check your own before putting the trade on.
#3 – Risking too much: Most people will constantly go on about using proper risk management and for good reason. Not using good risk management can cause a good trade to go bad and it could potentially go very bad. When creating your trading plan, you should have worked out exactly how much you should risk per trade and also the size of the trades that you will use. No matter how good a trade setup is, a good trade will be instantly considered bad if the risk management is not properly adhered to. You are putting your account in danger because even the perfect setup could still lose, but it would still be considered a good trade if it loses but all other parts of the trading plan are kept in line with it.
#4 – Dwelling on previous trades: When you come up with a new trade idea, you need to give it 100%, if you are still thinking of the previous trades whether they won or lost, you are not giving the current trade the amount of attention that it requires. If you are not looking at it with 100% of your attention then there is a good chance that you may miss something, in fact, the chances of making a mistake go up dramatically. Coming off a previous loss can also cast doubt and cause you to hesitate when putting on another trade, this wastes valuable time and can potentially cause you to miss the timing completely when you do eventually put on a new trade, it’s no longer a good trade. The same can go for thinking of winning trades, it can give you a lot of confidence which could cause you to place the trade without fully satisfying the trading conditions required by your trading plan.
#5 – Not treating trading like a business: You have probably been told a number of times that you should be treating trading like a business, this puts you into the mindset and will help to make you far more responsible for your trading. When we are using our own money we are far more likely to add a little extra or to place trades that we would not normally trade, so keeping things professional will help us to avoid those pitfalls.
So those are a few things that can ruin a good trade, it is important to place your trades in a timely manner and only if they are in line with your risk management and trading plans, that way, you can ensure that any good trades that you analyze or come across, you can place with confidence knowing that they are all good trades.