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Avoiding Trading Mistakes

In Jack Schwager’s New Market Wizards, William Eckhardt said that one mistake traders make is putting too much importance on any single trade. His suggestion was to remember that any one trade is just a small part of the bigger picture and needs to be treated dispassionately. When the individual trade becomes too important, we tend to do things to make the trade work, for example we take profits too quickly or we let losses go in hopes of a return to profitability.

Trading Hints and Tips

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1. OPPORTUNITY. There are dozens of these every day, unfortunately you can’t buy them all, so only pick the top 10 and then narrow them down to 2 to 3.
 This is done by using your buying criteria which is part of your trading plan which you already have written down. (Hopefully you have one?)

 2. BUYING and SELLING. I have a pre planned strategy which I have developed by trial and error; this was achieved by learning by my trading mistakes  and the mistakes of others.
 3. PATIENCE.This is definitely a virtue worth developing. Sometimes the market is going up in the right direction, but is not going as fast upwards as you  would like.  Be patient and use a “stop loss” to lock in those profits. However small they may be.  Also don’t always be in a hurry to “buy that next share” just because you have that money burning a hole in your pocket.  Do your homework and then you have chosen the right share for the right reasons and not just because it looked good 

 4. STRESS.If it is hurting! Don’t do it, cut your losses or be content with a small profit and get out. (more…)

The Hidden Variable in Your Trading Success

Most traders realize that trading involves a lot of psychology. And most traders readily admit that a significant portion of their trading losses, or lack of performance, is due to “psychology”.  Although the term ‘psychology’ isn’t always mentioned as an explanation, you can see it easily enough in the following statements ……”I froze just as I was about to pull the trigger”….. ”I hesitated and missed that trade and was so pissed that I got myself into an impulse trade right after”…..  “That large loss was not what I wanted, I held it thinking it would come back because last time I bailed out of this type of trade I got stopped out right before it reversed”….. “I was really nervous about losing money again so I got out of my winning trade way before my target”

Those are four common examples of trading psychology issues manifesting in one’s trading.  Do you recognize yourself in the above statements? (more…)

Expectation & Over Trading :Mistakes of Traders

Expectation-Expectations that are too high, too soon. Beginning futures traders that expect to quit their “day job” and make a good living trading futures in their first few years of trading are usually disappointed. You don’t become a successful doctor or lawyer or business owner in the first couple years of the practice. It takes hard work and perseverance to achieve success in any field of endeavor–and trading futures is no different. Futures trading is not the easy, “get-rich-quick” scheme that a few unsavory characters make it out to be.

“Over-trading.”overtrading-overeating Trading too many markets at one time is a mistake–especially if you are racking up losses. If trading losses are piling up, it’s time to cut back on trading, even though there is the temptation to make more trades to recover the recently lost trading assets. It takes keen focus and concentration to be a successful futures trader. Having “too many irons in the fire” at one time is a mistake.

10 Trading Mistakes !

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  1. Refusing to define a loss.
  2. Not liquidating a losing trade, even after you have acknowledged the trade’s potential is greatly diminished.
  3. Getting locked into a specific opinion or belief about market direction. From a psychological perspective this is equivalent to trying to control the market with your expectation of what it will do: “I’m right, the market is wrong.” [private] (more…)

The Hidden Variable in Your Trading Success

Most traders realize that trading involves a lot of psychology. And most traders readily admit that a significant portion of their trading losses, or lack of performance, is due to “psychology”. Although the term ‘psychology’ isn’t always mentioned as an explanation, you can see it easily enough in the following statements ……”I froze just as I was about to pull the trigger”….. ”I hesitated and missed that trade and was so pissed that I got myself into an impulse trade right after”….. “That large loss was not what I wanted, I held it thinking it would come back because last time I bailed out of this type of trade I got stopped out right before it reversed”….. “I was really nervous about losing money again so I got out of my winning trade way before my target”

Those are four common examples of trading psychology issues manifesting in one’s trading. Do you recognize yourself in the above statements?

All four of those statements have in common one thing, fear. Whether it’s the fear of not being perfect, the fear of being wrong, fear of losing money, fear of missing out, the fear of not being approved by others, or some other fear, the common theme is fear. Most trading mistakes are a maladaptive attempt to deal with fear or anxiety.

Emotions like fear and anxiety cannot be eliminated; it is part of the human experience. But how you respond (your behavior, the action you take in response) to anxiety and fear will determine how successful you are as a trader. Some traders recognize this and do something about it; they learn to work with the fear and anxiety to reduce the chance that they’ll continue to fall into the same old behavioral response pattern to fear and anxiety. (more…)

"Truth and Trading"

1. Truth: Truth is an absolute value. Some things are true in all places and times. Resisting evil, for example, is always right.

2. Justice: Justice consists of treating others as one would wish to be treated. “Do unto others as you would have them do unto you” summarizes this concept of justice.

3. Courage: Courage means standing up for justice.

4. Moderation: Nothing should be carried to excess.

5. Wisdom: Wisdom enables a person to know what justice is, to recognize when courage is required, and to do what is right.

So how do these values play out in our trading? In this column, let’s explore truth as it applies to your trading.

One of the clear, clean things about trading is that truth is immediately and finally manifested. The price goes up or down or nowhere. Your trade or position is profitable or not. You can’t spin it any other way. You’re right when you make money. You’re wrong when you lose money. That’s just the way it is.s

There are also other truths involved. You just got lucky. You have a robust and proven method for trading that you can rely upon over time. Your methods are flimsy at best, unpredictable at worst. You have no method or you have a million methods which amounts to the same thing. Your impulses frequently and easily override your methods, or you rigidly apply your rules even when you clearly should not.

You keep clear records so you can assess what works best, or you don’t and at the end of the day (or the week or the month), you have no idea. Your record of action is either clear or murky. To correct it, it needs to be clear.

You need to tell yourself the truth as you go along. No excuses. No complaints. No trumped up stories. If you can truthfully analyze your trading mistakes as well as your trading strengths, you can make adjustments, and develop a personal style that will lead to trading success.

Telling the truth about each day’s (week’s, month’s) trading doesn’t mean you have to be brutally cruel to yourself or gloomy about your trading. What it does mean is that you don’t have to do that again, and you can optimistically look forward to the next day’s trading. You will know the truth, and the truth will make you free.

You want to keep your trading in true alignment with any known or possible clues as to the on the ground truths in relevant areas. There are fundamental truths, technical truths, methodological truths, inter-relational truths, and personal truths. The closer you can get in any or all of these areas, the better your prospects. You will seek to know the truth, and those truths will power your trading.

Trading Mistakes

Letting small losses turn into large losses.
— Refusing to take a loss at all.
— Overbetting.
— Bottom fishing/Catching falling knives.
— Averaging down.
— Shorting bulls and buying bears.
— Confusing the company with its stock.
— Falling in love with a “story.”
— Following the leader.
— Buying IPOs.
— Finding the Holy Grail.
— Overtrading.
— Excessive tape watching.
— Being undercapitalized.
— Letting the tax tail wag the stock dog.
— Relying on Blue Channels and Website Analysts
— Thinking this market stuff is easy.
— Thinking rather than looking.

3 Trading Lessons

A good trade can lose money, and a bad trade can make money. Even the best trading processes will lose a certain percentage of the time. There is no way of knowing a priori which individual trade will make money. As long as a trade adhered to a process with a positive edge, it is a good trade, regardless of whether it wins or loses because if similar trades are repeated multiple times, they will come out ahead. Conversely, a trade that is taken as a gamble is a bad trade regardless of whether it wins or loses because over time such trades will lose money.

Ray Dalio, the founder of Bridgewater, the world’s largest hedge fund, strongly believes that learning from mistakes is essential to improvement and ultimate success. Each mistake, if recognized and acted upon, provides an opportunity for improving a trading approach. Most traders would benefit by writing down each mistake, the implied lesson, and the intended change in the trading process. Such a trading log can be periodically reviewed for reinforcement. Trading mistakes cannot be avoided, but repeating the same mistakes can be, and doing so is often the difference between success and failure.

For some traders, the discipline and patience to do nothing when the environment is unfavorable or opportunities are lacking is a crucial element in their success. For example, despite making minimal use of short positions, Kevin Daly, the manager of the Five Corners fund, achieved cumulative gross returns in excess of 800% during a 12-year period when the broad equity markets were essentially flat. In part, he accomplished this feat by having the discipline to remain largely in cash during negative environments, which allowed him to sidestep large drawdowns during two major bear markets. The lesson is that if conditions are not right, or the return/risk is not sufficiently favorable, don’t do anything. Beware of taking dubious trades out of impatience.

Six trading lessons from speculator Jesse Livermore

Stock operator’s reminiscences useful in today’s market

If you ask traders to choose the most influential trading book, more than likely, they’ll mention Reminiscences of a Stock Operator by Edwin LeFevre. This book describes the experiences of one of the world’s greatest stock speculators, Jesse Livermore.

Many of the anecdotal lessons included in the book are well known to experienced traders. For example: the market is always right; don’t over-trade; never argue with the tape; use stop losses, and always trade with the primary trend of the market.

Almost anyone can learn the mechanics of trading. It’s the psychological pitfalls that make trading one of the most challenging activities. No matter your skill level, it’s important to remember and obey the rules of engagement — another word for discipline.

With that in mind, this book contains dozens of important lessons. Here are a few of my favorites:

1. Learn how to lose

Livermore (speaking through the fictional character of Larry Livingston) complains how he’s made a series of trading mistakes that cost him a lot of money, although he wasn’t completely wiped out. The losses, he admits, were painful but educational:

“There is nothing like losing all you have in the world for teaching you what not to do,” he says. “And when you know what not to do in order not to lose money, you begin to learn what to do in order to win.”

After going broke three times in less than two years, Livermore has this advice: “Being broke is a very efficient educational agency.” He says that you learn little from your winners because they often take care of themselves. It’s the losers that will teach you lessons to last a lifetime. And as long as you don’t make the same mistake twice, you always have the opportunity to trade another day. (more…)