5 mistakes that will destroy great setups

How do we lose money with amazing setups?

Two words – trade management.

We think just because something has worked ‘90%’ of the time before, it’s a guaranteed winner.

So we drop half our account into the trade, only to watch that 10% blow up in our face.



I want to share with you the 5 common mistakes I see traders make, which can destroy even the best trades.

Look, I can teach you how to find high probability setups.

But without the right tools, they mean nothing.

It doesn’t matter whether you’ve been trading for 10 days or 10 years, chances are you’ve committed one or more of these sins.

I know I have.

It’s nothing to be ashamed of.

Grab a pen and paper and write these down. Then post them next to your computer.

Look at them every day to remind yourself to stay out of trouble.


Risking too much

This one sneaks up on you when you least expect it. It’s the easiest to fall for.

Risking too much comes from a few different scenarios.

First, you get on a hot streak. After collecting a handful of wins, your account grows, and you think you can safely up the ante.

Second, you don’t have a risk management strategy. The amount you risk per trade is arbitrary.

Third, you get caught up in the moment. Fear of missing out (FOMO) hits hard and you bet too much on a trade that everyone’s in.

Maybe you win a trade or two. But inevitably, you take one or more losses that push you below where you started.


Solution: Create a risk management plan.

Each trade I make is based on a well-defined methodology. I put in a fixed amount per trade.

Some folks use a percentage of their account.

No one is better than another. You just need it to fit your personal risk tolerance.

If you find yourself waking up at night, worried about your trades, you’ve got too much risk on.


Not paying attention to the news

Have you ever found an awesome set up and only realized after you took the trade the company is being bought out?

Been there done that!

Or how about you completely forgot earnings are coming up? You wake up the next morning to find your options aren’t worth the paper they’re printed on.

Sometimes we just take a moment and look for information surrounding stock that we’re interested in. 


Solution: Put together a watchlist

Many of the traders I know create watchlists before and during the trading week.

They will continually update them with notes about earnings and corporate events that could move shares.

My watchlist isn’t much more than 20 or 30 stocks. And it doesn’t take more than 10 to 20 minutes to get all the relevant information you need into a spreadsheet.


Ignoring the broader market

Not all stocks are highly correlated to the major indexes.

But if you stepped into shares of any company back in March without paying attention to the crashing market, you probably got caught in it.

I’m not saying that you need to pay attention to every single index in currency from here to Asia. 

But you have to have a sense of what’s going on in general.


Solution: Follow a few key indexes.

Here are the main indexes (and their ETFs) I watch for clues about the broader market.

  • Russell 2000 small cap index for risk (IWM)
  • Nasdaq 100 index for technology (QQQ)
  • S&P 500 for broad market health (SPY)
  • Dow Jones index for headline numbers (DIA)
  • VIX for measures on volatile (VXX)
  • U.S. Treasuries (TLT)

There are plenty of other indexes you can incorporate into your trading. These are just the main ones that I use.


Entering too early

Call it itchy trigger finger. 

Call it FOMO.

Whatever it is, traders get excited about entering a position and end up getting a bad entry.

While exits are important, you’ll never have to worry about them if you can’t get into the trade correctly.


Solution: Use a specific price limit order

When you design your trade setup, pick out a specific entry, target, and stop beforehand. 

Use limit orders to get into the trade.

You’ll either get filled or you won’t.

Trust me, there are plenty of trades around the corner.


Ignoring your stops

The cardinal sin of them all.

Nothing destroys an account faster than ignoring your stops.

There’s a multitude of reasons why this happens, but it all starts with you.

No one can move those orders or ignore those stops but what you see in the mirror.


Solution: Set a specific stop price and criteria – then practice it

Don’t settle for stop zones or areas. 

Pick a specific price and use that as your stop out, even if it’s arbitrary.

And as weird as this may sound, practice stopping out of your trades.

I’m not saying blow a ton of money or even use real money.

Creating muscle and psychological memories can help you battle through any emotions that happen when you get caught up in a trade.


Ready to find your setups?

Then pick up a copy Smart Trader.

This guide is loaded with tools and tips to help you find high probability setups to practice these skills.

Click here to get your own copy of my Smart Trader.

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