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5 Deadly mistakes traders can learn from skydivers

by , 09 May 2013

You're in a plane 1000's of metres off the ground.

You've psyched yourself up, parachute strapped on.

You have your altimeter in your hand and the rehearsed procedures firmly embedded in your head.

A thin trail of smoke whizzes past, exhaust jet fuel fills your nostrils and the, sound of the wind coming off the propellers confronts you as you walk towards the exit of the plane.

It's finally your turn to test gravity.

As you approach the door, an excitement overcomes your body knowing you're about to take the leap of no return.

Until…

You close your eyes and jump out into oblivion.
 
For the first few moments, the sensation of free-fall is exhilarating. . 
 
The friction of air blasting off your body stops the free-falling sensation and turns it into a floating and flying feeling.
 
The sense of falling gives you an illusion of flying, there’s only one problem…
 
The ground is now rushing towards you at an alarming rate.
 
Not knowing when to pull the ripcord, on your parachute, would be a ‘deadly mistake’!
 
The same goes for knowing when to pull your financial 'ripcord' when you're trading…
 
By sticking to your ‘trading ripcord’ you can save yourself from a financial ‘deadly mistake’.
 
Let me explain…
 
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Deadly Mistake #1 Not adhering to your stop loss can lead to financial harm
 
First let’s get into what a stop loss is…
 
The Stop loss when trading is exactly that, it’s the level that stops further losses. It’s where you say I have reached a level where any further “free fall” will cause me harm. 
 
When you have a trade lining up and you have your system is setup, the first thing you do to protect your trading balance is to set your stop-loss trigger. You know this will save you from financial harm.
 
Similar to when jumping out of a plane with an altimeter, you know at what altitude, you’ll pull the ripcord because you’ve read the procedure and training instruction manual.
 
Very often on the stock market when you hold onto a trade and it drops below your stop loss, this is where you’ll start doubting yourself and denying the level you initially put in.
 
You question whether your stop-loss level is correct and you adjust your level, you’ve just made your first deadly mistake.
 
By altering your stop loss, your initial trading system setup has now changed. Resulting in higher risk and potentially lower reward.
 
Can you imagine if a parachutist changed his or her rule book? I don’t have to explain the consequences, they are self evident. 
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Deadly Mistake #2 Ignore what is really going on in the market
 
While in your trade, it’s not uncommon to disregard the current market environment. Well, congratulations on making your second ‘deadly trading mistake’.
 
It is very easy to suffer the illusion that the market will have a turn-around at any moment and will move back into a favourable direction.
 
This mistake can be costly to your trading because it introduces a subjective trading tactic...
 
The guess work and presumptions start.
 
By prolonging your free fall and not pulling the rip-cord as per instructed at the right moment, every additional meter without an open parachute increases your risk of disaster
 
You eventually reach the ground in full force to find out, the instruction manual was right. Luckily you live to tell the story but now you have a severely damaged bank balance.
 
All traders make mistakes, but these 'deadly mistakes' are completely avoidable!
 
If you want to find out more about the other three most common costly mistakes traders make and how to avoid them, I’m going to do a talk on the Five Deadly Forex Mistakes at the FSP Invest Forex Workshop in Sandton on the 18th of May, click here for more info.
 
UPDATED:
I’ve managed to secure ONLY 10 tickets to the FSP Invest Forex Workshop on the 18th of May at a special reduced price of 42% off the full ticket price especially for MY MoneyMorning readers!
 
BUT I only have 10 of these special VIP tickets to my Forex workshop up for grabs, so if you’d like to reserve your place and claim your VIP ticket, you need to move fast!
 
Editor’s Note: To be the first to hear more from Timon on how to make fast profits from the exciting world of Forex, simply click here and we'll add you to Timon’s priority mailing list. 


5 Deadly mistakes traders can learn from skydivers
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