20 common mistakes and how to fix them – Part 4
Discover the five last common mistakes that most traders make in this article.
If you missed it, here’s the first article with the first 5 common trading errors!
Don’t miss our little secret in this post about 5 others common mistakes.
And finally, find here last week blog post about the 10 to 15th usual mistakes of beginners.
The trading mistake
A common refrain for everyone involved in trading is ” do not overtrade”.
But, how do we know when we are trading too much versus not enough?
What one trader may consider overtrading, another may consider just a normal day’s or week’s work.
- An active short-term trader can trade in and out of the market several times a day.
- An active medium-term trader may trade several times a month.
The trader with the medium-term approach can consider the short-term guy to be overtrading, while the short-term trader may think the medium-term dude is not trading enough!
The definition of overtrading for each of us is influenced by our personality and trading style;
Overtrading is a relative term!
Basically, here is a few guidelines to know if you are not overtrading:
- Are you making money? If you are making money then you are not overtrading. Of course, if you are asking yourself about overtrading and overpaying, you know you are overtrading.
- Is the game worth playing? In other words, is there enough money being made to justify the intensity of the effort being expended? Could you be making money at McDonald’s?
- Are you making more than the broker? Well, if you’re losing money and you’re going to have a lot of time, you should take a step back and let go the pressure. Remember that when your favorable conditions will come back, you will have to be relaxed and laser focused to optimize your profits.
- What are the physical, emotional and relationship costs of your trading?
- Is your health suffering?
- Do you have high stress, high blood pressure or other symptoms?
- Is your psychological health deteriorating?
- Are your interpersonal relationships suffering by virtue of the time spent on trading?
- Is your error rate increasing due to the large number of trades you are making?
- If any or all of these important areas of your life are suffering or being stretched, you are overtrading.
Though it may be a relative term, the negative impacts of overtrading are the same regardless of your trading system, time frame or account size.
Overtrading through frustration or attempting to prove that you are right, over-excitement at all the potential trading opportunities you see, or any other reason, needs to be identified early.
This will allow you to stop and reassess what is causing you to overtrade.
The overtrading trap can be avoided by :
- having realistic money-making objectives,
- performance measures
- and personal goals for your trading.
The trading arena provides us with an endless array of opportunities across a wide range of markets virtually every day.
It is easy to be sucked into this vortex – not just trading in your own home, but late into the night or just getting started.
The results on your physical and mental health are costly, not to mention the destruction of your social life and weird persona after having been glued to a computer for hours and hours.
The need for a disciplined approach, a trading plan, money management strategies, and a definite “edge”, to your trading will help ensure you are not eaten by the overtrading monster.
Moreover, you can think to:
- By creating and using a checklist of what you need to see in a set-up , you can exercise greater self-control and avoid overtrading.
- Taking short breaks during the day can also be helpful in reducing frustration and impulsive trading.
- Define a threshold of capital to avoid over-exposure and trigger emotions. We mean to have more “x” exposure on your account. Let’s say you do not want to have more than 20% of your account exposed at any given time. That, through a variety of money management formulas, will tell you how many positions you should have and the size of those positions.
17. Executional mistakes
The trading mistake
With the growth in the use of online trading platforms allowing anyone with a computer and access to the internet to trade without the use of a traditional voice broker, the onus of responsibility for ensuring that all trade details are entered correctly sits squarely on the shoulders of the self-directed trader.
The online trader has to ensure that the correct quantity of shares or contracts is entered, at the correct price, in the chosen market, and that the correct directive to buy or sell is given.
This can be further complicated by the use of more complex orders such as “market if touched”, “stop and reverse”, and others.
These may include spread trades, or intermarket price action where a specific condition in one market causes an entry or exit signal in another market.
For the computer and tech-savvy trader, these issues may not be as important as they are to those with less skill or confidence in these areas.
Nonetheless, mistakes can and do occur and they can happen to all of us regardless of our level of experience and operational skills.
Errors can range from:
- the simple (clicking on buy instead of sell) to complex errors that are difficult to unwind.
- placing a sell order instead of a buy order are just a mouse click away; it is very difficult for the online platform’s automatic safety net to prevent these errors.
- Forgetting to delete a stop loss after taking profits manually…
- Choosing the wrong prices are probably the most frequent. Fat fingers (typos) such as typing in to “Buy 10 000” lots instead of “1000” lots are easily made.
Money lost can wipe out the trading account.
Regardless of the market or instruments being traded, many of the typical errors seen by brokers are the same.
With education, attention to detail and awareness they can be avoided.
Avoiding them will save you money and contribute to the successful operation of a profitable trading business.
Many of these execution errors can be avoided by using common sense. Fully understand the markets you are trading and the platform. Below are some key actions that will help you avoid many of these typical operator errors:
- Have a professional approach to your trading and the use of your online platform.
- Use the available demos and market simulators to test the platform and your trading system before using real money in the market.
- Become familiar with the use of the online platform so you can use it with confidence in the heat of the moment and during periods of intense activity.
- Know and understand the markets you are trading.
- Trade liquid markets.
- Start trading slowly and with small lot sizes until you build confidence and execution skills.
- Have checks and balances in place; write down the trades and check them off as you execute.
- Stick to your trading plan.
- Respect the market. Be humble. Otherwise the markets will teach you to humility.
- Use an online platform that validates your holdings and checks available at your market.
- Use a platform that asks you to confirm the order before placing it on the market.
- Take your time. It’s a marathon. Not a sprint.
18. Not preparing and analyzing your trades
The trading mistake
In addition to the daily activities associated with trading – scanning and analyzing the market, entering and exiting trades, monitoring open positions, researching new ideas and systems.
In many ways, this is the boring stuff .
It is easy to delay it, avoid it, do other jobs and run away from it using any excuse you can find.
However, it is an essential component of any trading business and one that must be completed on a regular basis.
The more active your trading activities, the more work will be required to record results.
Active short-term traders will be able to produce more paperwork, and have much more information to record and monitor than longer term traders.
Having the importance of being a trader, the importance of keeping records of your trading becomes very important to your daily, monthly, quarterly and annual responsibilities.
As well as for the purposes of taxation, keeping track of the results of your transactions.
It will enable you to calculate the important numbers in this blog.
This allows you to determine the probabilities of your chosen trading system or strategy, and hence your “edge” in the markets.
Without understanding these numbers you will have no idea how (or your system) are performing.
You will also have no basis for comparison.
If crunching these numbers is left too long or not done on a regular basis, then your trading business is either a hobby or a doomed to failure.
Sticking your head in the sand and avoiding the paperwork and not keeping an option.
I must confess i am not so good at this … but well, it could be one of my 2020 year resolutions. I am awful at logging at the end of the day.
Took me 2 years to get married with my plans …
The ease with which information can be recorded in a spreadsheet (using software programs such as Microsoft Excel or Google Sheet) makes it possible for anyone to be able to efficiently record all their trade results.
There is Edgewonk.
All of these will be allotted to you, including entry date and price, exit date and price, number of shares or contracts bought and sold, brokerage charges and profit or loss from the trade.
More complex calculations to calculate win-to-loss ratios, average win versus average loss, and profit and payout ratios can also be undertaken.
In short, every aspect of your trading business can be easily documented and recorded.
These figures will provide you with all the information you need to determine the success or otherwise of your trading business.
My main criticism at the moment is that it is not easy to save my charts but it should be fixed very soon … allowing me to finally develop a strong logging habit.
19. Revenge Trading
The trading mistake
Sometimes, everything goes against you.
You take a loss, and one again, and … one more …
Or maybe you are upset because you have a corner but you missed the entry and the corner literally mooned without you.
Or maybe you made your money and you want more …
Angry, you add everything you got into the next trade.
While doing that, you are overexposing yourself and entering a market that you have failed to research.
Are you following your plan?
Because you did not make a plan and you are simply acting on raw emotions.
So everything you do become a mistake.
And, well, 99% of the time, it will end in tears.
Level up your awareness and your routine.
Every morning, you should write a few words about your emotions in your journal.
If you see you are becoming emotional and you are thinking about money, just do not take the trade.
Close the screens, go away and come back the day after.
20. Making the same mistakes again and again
The trading mistake
You can only make a mistake once.
If you repeat this mistake, it’s not a mistake anymore.
It is the result of a choice.
Choose right now to only make a mistake once, and never again. Make mistakes but make new ones. It’ll show you that you are learning from your mistakes.
FREE WEEKLY TRADING VIDEO
Subscribers, if you are unable to view the content, simply re-enter your email address and you will be granted an instant access.
Enjoy the video and feel free to comment !