Common Mistakes in Trading
As humans we all make lots of mistakes on a daily basis. As traders the potential for making them is increased significantly by various forms of pressure, money and P and L and by public enemy number 1 the ego.
There are a number of common mistakes that traders make and I am more than happy to admit I made most of them at various points throughout my career. The main ones are:
· Placing impulsive, frustrated trades after losing ones
· Becoming risk-averse and failing to take a good trades after a losing period
· Becoming overconfident during a winning period and taking more marginal or unplanned trades
· Becoming anxious about performance and cutting winning trades short
· Oversizing trades to make up for prior losses
· Ignoring stop-loss levels to avoid locking in a loss
· Working on your trading when your losing money, but not when your winning
· Becoming caught up in the market action from moment to moment rather than actively managing a trade, preparing for the next trade or managing a portfolio
· Beating yourself up after a losing trade and losing your motivation
· Trading for excitement and activity rather than to make money
· Taking trades because of FOMO and not because of a good risk/reward profile
The above will have most of you nodding and reminding yourself of an occasion or two when you messed up, but in isolation none of them should be career ending or life threatening!
There are a couple more that are more serious and for me are simply unforgivable and should never be tolerated under any circumstances, but they still happen:
· Hiding losses from the team and management
· Treating other traders, team members, support staff and brokers badly
If we can accept that mistakes are almost an inevitability in trading than the best thing we can do is to work out how to manage them correctly when they do happen and hopefully the following 7 step process can help:
1. Admit you have made one and own it – Don’t blame the market, your holiday, the analyst, your computer or any of your pets. Luck will even out over time, but letting your ego persuade you that nothing is your fault, will lead you to making the same mistakes many more times than is necessary. Own it!!
2. Analyse and learn from it – Simply analyse what went wrong and why and learn from it.
3. Document it and talk about it – Write it down in your journal and or speak to a colleague, your manager or your coach about it. This will help to offer accountability and provide safeguards to stop it from happening again and again. If your ego will let you, maybe even stick post it’s around your screens with the common mistakes or your previous mistakes on them.
4. Be nice to yourself – You wouldn’t start abusing your team mate or the trader down the road @ the leading hedge fund if they nobbed up, so don’t do it to yourself either. We have established that even the best traders make errors, so you are in very good company.
5. Reset- Take a bit of time out to reset and make sure you don’t go down the chasing losses route. Compounding mistakes is less forgivable and is when minor losses tend to build into bigger ones. It could be a walk, a coffee break, the gym or maybe even some time off. It’s however long you need to clear your head and be back to your best.
6. Move on – Once you have completed the above steps, move on. It’s in the past and can’t be undone. There are plenty more battles to be fought and P and L to be made. By worrying about the past we are simply lowering our confidence and ability to make money in the present and the future.
7. If you repeat a mistake – It’s certainly slightly less forgivable second and third time round, but over a long career it’s also very likely. Just repeat steps 1 to 6 and give yourself a little dig in the face!
Hopefully this article will help you to cut out certain mistakes in your trading and also help you to manage things better when they inevitably do happen.
If you want my help on a more formal basis, please just DM and let’s have a no obligation conversation.
Rob
Call me on +44 7818 012109
rob@lustforlifecoaching.co.uk