Alex is up now with his fourth post of the week and aptly talks about trading mistakes.
You can catch up with days 1-3 here: Monday, Tuesday & Wednesday
Oh no, not again!
Day 4: Common trading mistakes, my experience, what not to do;
I’ve made an awful lot of mistakes while trading. I could recall thousands of them and they still hurt. So I’m going to talk about my worst trading mistakes which I’m trying to avoid.
- One of the worst: trying to recover losses after a bad trading day or week. I used to do it by forcing my setups and so taking doubtful trades in the hope to achieve a breakeven on my trading account. Bad, bad, bad, it usually ends up in tears and more frustration. After London close more than often market volatility drops, ATR drops, and without it even if you find a successful swing or a reversal you can’t recover a 100 pips loss. Ditto for Friday trading after London close, and having open trades during the weekend could be not so smart, especially if bad news come out and your stop–loss cannot cope with more than a handful of pips. You’ll find better opportunities in the future.
- Trading at any costs. You don’t have to have a position at any costs, the Market can survive without you! It usually leads to bad results and adds to your frustration. Some days the market is stuck in narrow ranges, or in weak short term trends that could reverse in a blink of an eye, or maybe it’s Monday morning and there’s no direction, or some big stock exchange bourse is closed on holiday or there’s a holiday approaching. Switch off the PC, take a break and have some life.
- Trading when you are unsure or you lack a vision of the market behaviour, where it really wants to go, and a big event is looming. Apart that even the market could not possibly know what to do … But this is not up to us. So just follow this simple rule: when in doubt stay out, and read again the previous point 2 of this list. Market could react to the event outcome by whipsawing the hell of it and wipe all the positions in a 200 pips range. Maybe because it’s a ‘buy the news sell the fact reaction’: the news/data outcome could be what the market expected but it was already frontrun in the days before so you could get a massive take-profit reaction or, the data are good but not good enough for the market so there’s disappointment. The key is, whatever are the reasons of the whipsaw you were caught in between and you were eaten and spitted in a few seconds. Hedging could be an answer but we should be able to master these techniques.
- Add to a losing position. Sometimes it worked but I reckon I’m no good at it, or I need more experience to successfully manage it. Cut your losses short and let your wins run is a sound advice to me.
- Your setup doesn’t work anymore. Maybe market has changed, you have to find another setup that suits the new market behavior. It happened to me when my Randy Candles setup on 15 minutes charts stopped to work because market ATR halved… I developed mine instead, on an higher timeframe, and it worked on 1H charts: just needed more patience. Scaling back your trading size could also help when market uncertainty rises. Another tip: your scalping setup doesn’t work on 5/15 minutes charts anymore? Use a higher timeframe, in example 1 hour. If it works there you could come back to the original timeframe whenever possible. Or change pairs. EUR/USD was a workforce to me but I switched to cable and NZD/USD while I discovered that I wasn’t good to trade it anymore.
- Trading when your health is not in perfect shape: you need all of your skills working fine to trade successfully, so switch off the PC, take a break and some rest: you deserve it.
- Be hard headed about market direction. Wrong, wrong, wrong. You firmly believe that a certain currency must go up, because data, news, analysts, everything supports it. But the currency seems not to follow through, price action is lackluster to say the least. My take is that price action is telling you something: if the market really wanted to lift something, it would have already started to lift it, or at least it would have given some hints. Be always flexible.
The bottom line is that you must be the judge of yourself, not too harsh nor too easy, and analyse your mistakes, especially if you tend to repeat them. You have to improve yourself in order to be successful to survive this minefield. Maybe that writing them on a piece of paper and reflecting on them with a clear mind could help. Also taking a break from trading could help, even a two weeks break could make a lot of difference.
