There is no such thing as a “perfect trader.” Making mistakes in trading is inevitable. How you handle the mistakes is what separates successful traders from unsuccessful traders. There is nothing wrong with making mistakes, as long as you learn from them. The problem comes in when you start to repeat mistakes over and over again. Every time I make a mistake, I try to take away a lesson so I do not make the same mistake again. Here are a few of the most costly trading mistakes I have made.
Biased Trading
We are in Bull Trend so I should always be on Buy Side even my Set up shows I can take short.
Few Traders take Short/Long just seeing if a stock has risen too much, so lets short it. Many Traders blindly shorted India Bulls Real Estate and paid heavy price. Stock Rallied almost 60% in 2 days. When you take this approach to day trading, you’re thinking emotionally and “how things could be” vs. what you set out for the trade to be. You are taking a reactive approach instead of proactively planning the trade. You should never enter a trade without an exit plan already in your mind. Biases have no place in trading. Plan Your Trade and Trade Your Plan.
Adding to a Losing Position
Human Being are Risk Averse, Its in our genes. Most of my biggest losers have occurred because I was too biased AND I started adding to the losing position. While your initial position may only be 1 Lot of Stock Futures, it’s so easy to build up to 3-5 Lot when wrong, and turn what would have been made a small lost of 20k to 100K . This is typical of many traders, including myself at times. When you are stuck in a losing trade, make sure to stick to your trading plan instead of rationalizing and acting emotionally.
Taking Position Just to Trade
Sometimes we get anxious and just want to be in a trade. This may be due to the fact that everyone else is in the trade, or simply because you do not want to miss the move. This mentality can lead you to blindly follow others and THEN determine why the trade was made. This is backwards logic because traders should have an exit plan before they even think of entering a trade. No trades should EVER be made because of someone else. Sometimes the best trade is no trade. Be patient and wait for trades to come to you. It’s a lot like after hours trading – sure it may work sometimes, but it’s that one time that it doesn’t that screws you. You need to make sure you are following a calculated trading plan if you want to profit consistently.
Impulsive Trading
Many times traders will take trade just out of Impulse. This is an easy way to ruin your trading account. Mostly it happens after a losing trade or after you exit and trade goes in your favor. You need to be mid full of these emotions and avoid doing trades just out of impulse.