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Typical Trading Errors

  
  Education
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1.  Refusing to define a loss.
2.  Not getting rid of a losing trade when it is obviously a loser.
3.  Getting locked into a bullheaded opinion about market direction.
4.  Focusing on monetary value of trade instead of market structure.
5.  Revenge trading to recoup a loss.
6.  Not reversing a position when the market is clearly changing direction.
7.  Not following the rules of your strategy.
8.  Planning for a trade and then not taking it.
9.  Not acting on your intuition.
10.  Giving back recent gains due to overtrading or inconsistency.

Apply Will Power in Trading

  
  Education
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Much of successful trading has to do with having the discipline, the willpower, to follow the trading plan. And much of a good trading plan goes counter to a human’s natural reactions to the market. Hence the greater your willpower, i.e. the better you are able to have self-control or self-regulation, the better your trading.

Below are some key points from the article and Roy Baumeister’s YouTube videos, and my thoughts on how they apply to trading.

The Nature of Willpower

  • Willpower is a limited resource that gets depleted when you use it.
    • I typically find that my trading at the early part of the session is good. I would follow my trading plan well and profits usually follows. However towards the later part of the morning, I start to make mistakes and go counter to my trading plan, that’s when my results suffer.
    • Be aware of when you have run out of juice. I find that once I start make a few consecutive trades that violate my trading plan, I recognize that my willpower has been depleted, I am not making good decisions, so I go take a break, or stop trading for the day entirely.
    • Some traders recommend not trading for more than 3 hours a day. Yes you may miss a run away market after you stop trading, but recall your experiences when the market trended very well the entire day but yet you lost money. To extract money from the marketsrequires willpower to make the right trading decisions. When you are not able to follow your trading plan, the probabilities favor you giving money to the markets instead, regardless of the market situation.
  • When your willpower is depleted, you feel your emotions more intensely (more…)

HOW TO LOSE MONEY IN THE STOCK MARKET

  
  Education
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There are so many ways to lose money in the stock market but whether it is from blindly trusting what turns out to be a Bernie Madoff ponzi scheme to refusing to take a loss on a “sure thing”, the root cause of losses is our inability to objectively perceive market action without the many and varied biases associated with “money on the line”.

According to Mark Douglas…

In any particular trade you never really know how far prices will travel from any given point. If you never really know where the market may stop, it is very easy to believe there are no limits to how much you can make on any given trade. From a psychological perspective this characteristic will allow you to indulge yourself in the illusion that each trade has the potential of fulfilling your wildest dream of financial independence. Based on the consistency of market participants and their potential to act as a force great enough to move prices in your direction, the possibility of having your dreams fulfilled may not even remotely exist. However, if you believe it does, then you will have the tendency to gather only the kind of market information that will confirm and reinforce your belief, all the while denying vital information that may be telling you the best opportunity may be in the opposite direction. (more…)

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