1) Greed keeps you in a trade and pain takes you out:
Extreme volatility of an equity curve shows a trading strategy weakness and is a warning of a crash (the “recovery ladder” stablish that the larger the draw-down the bigger the effort to get back to where you started).
2) Is the juice worth the squeeze?:
In other words, what´s the Probability of Outcome [POUT score]?, and given the probability of that, what is the Reward to that Risk Ratio [RRR] and Time to Target Expectancy [ToTE]?.
There is a complete lack of people bringing the RRR (risk-reward ratio) into their money management, let alone RRR with respect to ToR aka RRR/ToR it is critical to determine the viability of every trade; Due to not having a complete RRR calculation, you won´t be able to set up the targets accordingly to the mathematics of a proper money management.
3) The trend is your friend…are you sure?:
The time frame confusion is an element that comes up for traders, and when we see something set up on a shorter time frame but it´s counter-trend to a larger time frame, we get misaligned.
We should be aware of what time frame we are trading in order to not end up taking short trades against the major trend and therefore counter-trend trading without even realizing it.
4) I made the most money when I just sat:
Learning that patience and to stand by your plan is really important, because not feeling the need that trading should be consistent and regular makes the difference.
5) Be a specialist:
Specialists make the money.
Focus on one thing, and do it very well avoiding “He was a jack of all trades, and a master of none”.
6) No indicators will replace price action:
We can understand and exploit the consistency with which human nature evolves and how that play into something technical like patterns, instead of a line generated from a mathematical formula (derived from price data and therefore lagging).
Regarding to this, note that the stop loss should always be technical, not mathematical.
7) Position sizing is key:
When it comes to position sizing, people are too aggessive on individual trades and the market doesn’t care about what percentage of equity your account is.
Some traders don´t even realise that their position sizing is too large due to ego based non-sense and the big losses became a pain management based exercise. These sentiments illustrate inflexible mentality, sabotaged by ego, macho’ness and false constructs of courage and masculinity.
Those pitfalls are due to an over fascination on indicators, incomplete trading strategies, no trade closure plan or target, the belief that a trailing stop-loss is a suitable exit strategy, the absence of targeting, the wrong position sizing, and the inappropriate use of money management.