In Greek mythology, Pandora’s “box” was actually a large jar given to Pandora, the first woman on Earth. It contained all the evils of the world. When Pandora opened the jar, these evils escaped, leaving only “hope” inside once she managed to close it again.
In the trading world, the phrase “open Pandora’s box” means taking an action that seems small or innocent but ends up having severely detrimental and far-reaching negative consequences.
How does the metaphor of Pandora’s box apply to trading?
Sometimes, a seemingly minor action or thought regarding market trading can lead to disaster. Have you ever been following your trading routine successfully, staying focused and on track, only to take one bad trade that derails everything and sends you spiraling out of control? In trading, we constantly battle the temptations to overtrade, take excessive risks, make poor decisions, follow the wrong advice, and just one misstep can undo months or years of hard work.
Simply put, as traders, we grapple daily with the potentially disastrous consequences of opening the “Pandora’s box” of trading mistakes.
As the Greek myth suggests, once Pandora opened the box, all the evils were released, leaving only hope behind. This is a fitting analogy for trading as well; once you veer off course, it leads to a path of increasing temptation and trading errors, often resulting in blown accounts and leaving traders with only the hope of making money. The best way to achieve trading success is to ensure you never open “Pandora’s box.” The first step is to recognize the ways in which this box can be inadvertently opened.
Here are a few common triggers that can lead to the opening of Pandora’s box of trading mistakes…
The Pandora’s Box of Trading Mistakes Will Open If You…
Here are the two big ones:
Over-trade
Over-trading is perhaps the arch-nemesis of all traders, lurking in the shadows, waiting to pull us away from the path of profitable trading. More than any other trading mistake, over-trading quickly leads to an avalanche of errors. You take one trade that you knew didn’t meet your trading plan criteria, and boom, you’ve opened Pandora’s Box. Maybe you think you can ignore that bad trade and return to being a disciplined trader, but unfortunately, most people can’t. Regret sets in, followed by anger, and then they jump back into the market to try to “make back the money” lost on that one bad trade. At this point, the cycle is essentially set in stone, and you’re likely to lose even more money as you chase the market, trying to ‘fix’ your past mistakes by trading more. This often leads to over-trading more and more until you blow out your account.
Perhaps you heard a ‘tip’ from a friend that doesn’t align with your trading plan, but you take the trade anyway. Sure enough, it results in a loss. You’re now angry because you knew you shouldn’t have taken that trade—it cost you money and broke your discipline and consistency. Most people will then make another mistake by jumping back into the market to recoup the money they just lost. This leads to more losses, and the situation snowballs out of control. One break from your routine can cause this, just one. One little slip-up, and you’ve opened Pandora’s box.
Risk Too Much
Risking too much on a trade—more than you are comfortable losing—is a sure-fire way to open the Pandora’s box of trading mistakes. What better way to become overly emotional about a trade than by betting too big on it? It makes you obsess over it and micromanage it, causing premature or poorly timed exits. Regardless of whether you win or lose, risking too much is bound to open Pandora’s box.
If you lose, you’ll be upset about losing more money than you were prepared to. This often leads to jumping back into the market to “make it back,” likely on a trade that doesn’t meet your criteria, resulting in further losses. If you win, overconfidence can set in, leading you to continue risking too much until you eventually lose. This loss then drives you back to the market to recoup your money, resulting in even more losses.
As you can see, one wrong move—whether trading too frequently or risking too much—can start a snowball effect of trading mistakes that grow progressively worse until you blow out your account.
Here are some other things that may cause the Pandora’s Box of trading mistakes to open:
- Emotional distress: If you’ve had a fight with a spouse or friend, experienced the death of a loved one, or are otherwise emotionally distressed, turning to the market for ‘comfort’ can lead to disaster. Entering a trade in such a state can quickly lead to losses, opening Pandora’s box. You must be in a good or at least a stable emotional state to trade with discipline and consistency.
- Trading from your phone: This might seem harmless, but it’s a quick way to open the ‘box’ and unleash the evils of trading. Charts on a phone appear smaller and more compressed, making it difficult to see price action or patterns as you would on a computer or laptop screen. This can lead to dangerous misinterpretations. Additionally, mobile trading can tempt you to over-trade because of the constant access. For these reasons and more, I advise against trading from your phone.
- Trading real money too soon: If you want to open Pandora’s box quickly and easily, start trading real money before you’ve learned how to read a price chart or developed a strategy and trading plan. Trading might look easy on the surface, but consistent profitability requires proper training, experience, and time.
How to Avoid Opening Pandora’s Box?
To avoid opening the Pandora’s box of trading mistakes, you need to avoid the errors discussed earlier. While this is easier said than done, here are some insights to help you steer clear of these pitfalls:
Survive Long Enough to Thrive
Think of trading as a game of survival of the fittest because it truly is. Only the strong survive in the trading world, and to do so, you must plan and protect.
One of the biggest mistakes beginning traders make is not managing their risk capital properly. They trade it all away, and when a high-probability trade signal finally comes along, they have little or no money left to take advantage of it. To thrive, or even just survive in trading, you must trade smaller position sizes at the beginning to preserve your risk capital long enough to figure out what you’re doing. Only when you have truly mastered your trading strategy should you consider increasing your position size. Remember, trading is a marathon, not a sprint.
Learn to Walk Before You Run
Traders who start trading live before they’re ready often end up opening Pandora’s box of trading mistakes. So, how do you know if you’re ready to trade live? This varies from trader to trader, but you should have a solid understanding of price action, trading psychology, and money management before you start. A proper trading education is essential to learn these aspects effectively.
Don’t focus on getting rich quickly—it’s not going to happen. Instead, concentrate on learning to trade properly. Apply what you’ve learned slowly and with small stakes at first. As you gain experience and confidence, you can gradually increase your position sizes.
Too Much of Anything Will Kill Your Trading Account
Do you want to behave like a gambler in the market or like a skilled, calm, and collected trader? If you prefer the latter, pay attention…
High-probability signals don’t appear frequently in the market. If they did, everyone would be rich. Only about 10% of traders succeed because most lack the patience and self-discipline to wait for the right opportunities. Many also don’t learn enough to recognize high-probability trades worth risking money on.
To succeed, you must be patient and disciplined, even if it means doing nothing for days when no trades are worth taking. Ensure you’ve learned enough to understand your trading strategy and what a high-probability trading edge looks like. This knowledge will help you know when to trade and when to sit on your hands.
If You Play with Fire, You’re Going to Get Burned
If you’re risking more than you can comfortably afford to lose per trade, you’re essentially acting recklessly with your money. How do you determine how much you can afford to lose? You can either calculate it mathematically or use what I call the “risk sleep test.”
Can you fall asleep and stay asleep soundly at night? Are you okay with not looking at the charts or your trades for 24 hours? If so, you’re probably risking a safe amount. However, if you’re preoccupied with your trades in any way, shape, or form, you’re risking too much and need to reduce your position size.
Learn to Plan and Anticipate
The best way to prevent your future trading self from inadvertently opening Pandora’s box is to learn how to anticipate trades. Develop a trading plan built on anticipation rather than just reacting to the market.
Your approach should be to learn enough about price action and technical analysis so that you can read the market like a book and identify areas on the chart where you’d like to trade before the market reaches them. Then, if the market reaches these predefined areas and forms a price action signal, you simply execute the trade without overthinking. The thinking and planning should be done in advance. If you wait until you think you see a signal to start planning your approach, you’re already too late in most cases.
Have a Trading Plan
One of the most powerful tools to keep Pandora’s box sealed shut is a well-constructed trading plan. A trading plan allows you to rely on a structured approach rather than on your emotions. While humans are inherently flawed, our ability to plan for the future can be our saving grace. By meticulously planning your trading strategy, you reduce the risk of self-sabotage.
A trading plan also provides accountability. Trading is a solitary endeavor; although it’s great to have no bosses dictating your actions, this freedom can be a double-edged sword. Without a plan, what’s stopping you from over-trading or taking on too much risk? Only you, and in the trading world, where temptation is constant, self-trust is not always enough. However, by developing a trading plan and committing to it, you can hold yourself accountable.
The key is to stay disciplined, consistent, and accountable in every aspect of trading. Deviating from your plan can quickly lead to opening Pandora’s box, with potentially disastrous consequences.
Conclusion
My goal is to help you avoid opening Pandora’s box and to guide you towards long-term success in the trading game. You can’t hack or cheat the markets; if you don’t adhere to the fundamental principles, you’ll be chewed up and spit out faster than you think. Don’t let your ego and impatience destroy your trading account or your chances of success.