Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

Trading System – Common Mistakes & Belief

2 min read

Iam just listing down some of the common mistakes done by traders and their belief when they jump into the concept of Trading system. These are some of my observance from the people those who jump newly into the trading system world. If you observed a lot please list ii here.


 
1) Iam Blindly Trading based on the Buy & Sell Signals without analyzing the risk involved in the trading system.

Anyone those who are very new to the trading system concepts got attracted towards it. These Buy and Sell arrows on the chart give them psychological confidence on the trading system to trust those signals to trade.

These Buy and Sell logic built using programming languages are just mathematical models and doesnt do any sort of prediction works. So its better to understand the nature of the trading system and the risk involved in it.

2) I follow the trading system if someone/my friends/relatives provoke me that the trading system is good because it had made them considerable amount of profits using that trading system after few trades and they advertise me that it is a very accurate trading system as they had observed few trades and followed some of the buy and sell signals from the trading system.

Most of the common people are getting attracted towards this sort of trading system. Visual testing alone is not enough as the observation of the sample size is very low and it is very tough to evaluate a trading system behavior based on visual observation alone.

3) Iam looking for a good intraday trading system which gives 75-85% accuracy. Iam even ready to pay for that. Let me know if you have.

Many website in india very recently opened shops to trap these kinds of traders as these traders are very new to trading system and they do have a lot of inner spirit to earn more or probably they would have lost more. Such traders are getting trapped because of the cacthy Charting Images/Snapshots on their websites/facebook showing Distance Buy and Sell Signal with unbelievable profits. But once you started trading based the trading system in realtime scenario you could observe that something wrong with the trading system

4) I want to make 30,000 every month. Please provide me a trading system for that?

This is a wrong practice. If you are having such a attitude you could probably lost now or might be lossing very slowly. Remember Losses are part of the trading system. View Trading system as a mathematical tool to reduce the risk and trade in a business perspective and never view trading system as a gambling factor.

5) I loose my patience & Hope whenever i see 4-5 or even more consecutive losses

4-5 consecutive losses are very common in any kind of trading system and in the worst case 10 or even more losses are common. A trading system is considered as a good trading system if it withstand the worst case scenario and making consistent returns. No Necessarily such a trading system should have a winning ratio of more than 50%.

6) I want to trade higher timeframes as it involves less noise and i dont want to trade lower timeframes as it involves lot of whipsaws.

There are certain strategies where trading in higher timeframes involves lots of risk. Assume that Supertrend accuracy is 42% in 5min charts and you might thought that 15min charts and hourly charts would have lesser noise and higher winning rate. The answer is “yes” it invovles lesser noise when compares to 5min charts but the risk factor is very higher in higher timeframes . 3-4 consecutive losses are possible in higher timeframes in such cases huge damage will be done if you are trading such a trading system in higher timeframe.So better analyze the worst case scenario of trading in such a timeframes and make sure you have the potential to withstand those losses.

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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7 Replies to “Trading System – Common Mistakes & Belief”

  1. Extract from Zatrino ( 6 Common Mistakes of Trading Novice)

    1)Position Size
    One of the most common mistakes made by new traders is the lack of any discipline when it comes to position size. This mistake is especially prevalent in leveraged markets such as forex and futures. The ability to control a large amount of currency or commodities with a small amount of money is quite enticing as it allows the trader to make large profits off of relatively small movements. Quite often, the trader will come into the market with unrealistic expectations of profits that are available. Most of the time, this comes down to something they have heard during a presentation or sales pitch about the markets. Quite often, the person selling the system or education that they are using makes claims of outlandish gains in a relatively short amount of time.
    Unfortunately, the average person completely ignores the warnings that most regulatory bodies insist on these people posting. If you ever look at the “fine print”, you will see mention of the fact that leverage, and for that matter markets in general, can work both ways and you can possibly lose the entire principal you trade with or even more money. This is a fact that most people seem to be willing to ignore, but only seem to focus on the claim that the system or trader using the education made hundreds of percent in gains over the year for example.

    The biggest mistake that most of these new traders make is to trade large positions sizes as a result of these extreme claims. The average trader has no idea when they start out what a difference risking 1% of your account per trade makes as compared to 10%. The simple fact is that you can indeed make more money if you risk more, but the reality of trading is that there are always going to be losses. The simple mathematics of the trade is that a loss of 10% is a much more significant loss than 1%. Most traders don’t take into account that a 10% loss takes a gain of 11.1% just to get back the money you lost on that trade. When you have a string of losses, the compounding difficulty can make for an almost impossible task. The idea that you will have losses leads to the next common mistake…

    This one can cause a lot of problems for the trader. The tricky part about this is the fact that you get into trading in order to make a profit, so it makes sense that it is the part you would be most interested in. However, trading is about making money overall and not necessarily in a few short minutes. The main reason of course is the sheer randomness of events and fluctuations in the markets.

    2)Focusing only on potential gains
    The truth is that you will have losses; there is nothing that can prevent this. The market will make sudden moves based upon headline events as an example. No matter how much you plan your trades out, there is absolutely no way you can predict that some political scandal involving the European Central Bank or other such unforeseen event will come and suddenly move the market against you. Because of such problems with the human nature of the trading crowds, you simply must have an idea when the trade is no longer working in your favor. There is always going to be a point in which you know the trade was wrong, and if you are not looking at the possible losses as well as the gains in any trade before putting it on, it is very likely you will find out the trade is wrong when you have taken far too large of a loss to recover.

    3)System Hopping
    Another big problem that new traders will create for themselves is the mistake of system hopping. The average new trader is introduced by some kind of sales pitch, and then will often hear of legendary bank traders and other such urban legends in the trading world. Unfortunately, this leads to more of the unrealistic ideas mentioned earlier. The truth is you can make quite a bit of money trading the markets, but the business of trading is like any other business, returns are relative. In other words, a 5% return is a solid return at any account level. However, if it is a 5% return on a $1,000 investment, it is only $50. With a larger account, the return is much larger. This can often lead to switching trading systems frequently because the trader doesn’t feel that they are making enough money, and certainly not fast enough!

    Generally, they will have a loss or two, and feel that perhaps the system is junk. Maybe it isn’t working in the current environment, or perhaps the person that sold the system to them was offering junk. None the less, the system has produced a few losses, and all of the sudden the trader goes onto the new big thing. The constant hunt for the “Holy Grail” trading system that will produce almost no losses and almost all winners is a fruitless pursuit that far too many traders get themselves stuck in. The truth is that a system that is proven over time is just that, proven over time. This doesn’t mean that there are no losses, just that on the whole, the system makes money. However, far too few traders are willing to give it long enough to prove itself. If you are constantly new to whatever system you are using, you never learn to trust it. Not trusting the system is a part of the next major issue.

    These are some of the points you missed above. Could be useful

    Arvindh

    1. Dear Great Guiding Stuff indeed,

      Thanks indeed

      Keep posting such stuff for benefit for all new born traders like me.

      Keep Good Work up!!

      Harjot

  2. Sir, Is there anywhere a link in this website which consists past daily charts images of stocks given in /livecharts/ …………………………..requesting you to please provide such past records in a page to view images as reference whenever required. my best regards to your site.

  3. Dear Sirji,

    Which is the best browser to view the live charts.

    In google chrome the live charts are updating around 25 seconds.

    In IE 8 no charts are visible.

    In Firefox 3.5 the charts are updating around every 20 seconds.

    Thanks.

    Enjoy,
    CArnot

  4. I am following one trading system in 5 min. But the problem is the candle just touches my SL and reverses back.. if i wait for 5 min closing. I miss the price. i m getting 1 point profit per day in copper(avg) in my system. if i wait for 5 min closing i will miss that 1 point also. Backtesting provides good profit.. But practically it is not showing profit due to this problem. niether i can wait nor i can blindy keep sl

    1. Very common problem Karan even felt by me also

      Hope Mr Rajandran will Guide us

      Regards,
      Harjot

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