12/08/2010 – 7 Ways to Become an Unsuccessful Trader

In 2002, Wayne Gorman, long-time Elliott wave trader and current
head of trader education at Elliott Wave International, left
his 35th floor Manhattan apartment and moved to the quiet of
North Georgia. He’s been sharing his knowledge and skills with
aspiring traders ever since — in both online seminars and before
live audiences around the world.

Wayne graciously agreed to a Q&A about trading mistakes.
In his interview, Wayne reveals seven common mistakes traders
make.

——–

EWI: Could you name two mistakes frequently made by
stock traders?

Wayne Gorman: (mistake 1) The first big mistake
is the flawed logic of extrapolation. Many traders and investors
assume that a trend will remain in force until an “event” comes
along to change it. But market trends are not like billiard balls
on a pool table. This false assumption will put you on the wrong
side of the market more times than not, especially at major turning
points.

(mistake 2) The second big mistake is to suppose that news events
drive market trends. In fact, the opposite is true: economic,
political and social events lag market trends.

EWI: What are two common mistakes among options traders?

WG: (mistake 3) One common mistake is to buy
puts or calls that are way “out of the money,” with
no other transactions to compliment them. Unless your timing
is absolutely perfect — and who has perfect timing? — your
chance of success is low. It’s like buying a lottery ticket.

(mistake 4) Another common mistake is to buy options with too
little time left to expiration. With less than one month to expiration,
the time decay begins to accelerate and the chances of success
diminish.

EWI: Please name a frequent mistake among traders who
aim to catch the beginning of a particular Elliott wave.

WG: (mistake 5) In the middle of a corrective
pattern, it’s common to run out of patience while waiting for
confirmation of a trend change. You have to give corrective patterns
time to unfold before you jump in. This requires discipline,
and a solid understanding of the many ways corrective patterns
can unfold.

EWI: What’s the biggest misconception among traders
about using Elliott waves?

WG: (mistake 6) Too many traders think Elliott
wave is a trading system that tells you exactly where to enter
and exit a particular market. That’s the biggest misconception.
The reality is that it’s an analytical and forecasting tool,
which helps you develop and use your own trading system, based
on your own personal risk tolerance.

EWI: What technical indicators do you believe traders
over-rely on, and why?

WG: (mistake 7) Traders tend to over-rely on
momentum indicators such as RSI, Stochastics and MACD to precisely
spot turning points. But to paraphrase Mark Twain, markets can
stay overbought or oversold a lot longer than either you or I
can remain solvent.

EWI: How would you characterize today’s market action,
and do you teach courses that address this environment?

WG: This is a difficult stock market in the
near term. Prices haven’t strayed far from where they began in
January. The action has yet to break out significantly to the
downside or upside. This situation may not last much longer.
I can suggest these online courses to deal with the current situation,
and to prepare for the next big move:

• How
  to Spot Trading Opportunities, Parts 1 and 2
• How
  to Trade Choppy, Sideways Markets
• 5
  Options Strategies Every Elliott Wave Trader Should Know
• Trading
  the Line – How to Use Trendlines to Spot Reversals
  and Ride Trends