#2: Your Breakeven Point Is Meaningless
This is the corollary to the first rule. One of the biggest mistakes made by individuals who trade — even those who have been doing it for some time — is to view the breakeven point as a critical level. If you have been losing money on a trade, the urge to see the red +/- dollar figure on your screen turn to green can (and will) cloud your thinking.
By the same token, you might let a trade languish when it comes back to within, say, 5% your breakeven point, as you hang around in a bad position waiting for the trade to go positive.
Worse still is watching the +/- column to determine when you have made “enough” money on a trade. Happy you’ve made $1,000, so you sell? That’s great … but more often than not, you would have been +$1,500 if you had closed the trade a half-hour later.
While common, this is a mindless way to approach trading. Over time it will lead to bad habits that inevitably will cost you money. Look at the trade based on its own merits, not where you got in. After all, the market doesn’t know the level of your trade. If holding on is the right thing to do, hold on. And if closing out the position is the right thing to do, do it.
The best way to avoid this common pitfall? Don’t even keep the window open that shows your +/- on a trade. If you do, it is a virtual guarantee that this is where your eyes will gravitate when you look at your screen. And bad decisions will follow close behind.