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In life, nobody is
perfect and mistakes are inevitable. Like life, no trader is perfect and
mistakes can happen. When they do, they can be expensive. If you’ve been
in the game for some time, there’s no doubt had your shares of mistakes
and in hindsight many of them could have been avoided.
I’ve been in the
trading business for more than twenty five years and I’ve had more than
my fair share of mistakes. I’ve come to learn that there are different
kinds of mistakes: those relating to the trade and those relating to the
trader.
To frame
this correcting, losing money hurts. For a trader, your trading capital
is your admission ticket to the game. Without trading capital, you don’t
trade – it’s that easy.
The
errors made in relation to the trade are ones caused by being on the
wrong side of the fence. When you place a trade, there are three
outcomes – you profit, you lose, or you break-even. Being on the wrong
side of a trade is an occupational hazard.
While
being on the wrong side isn’t a happy experience, it comes with the
territory. The first lesson that you learn in trading is that the market
is always right – period. Trying to prove the market wrong is fruitless,
painful and a sure fire way to blow a hole in your trading account.
The
second lesson that we all learned was that the first loss was always the
best one. A small loss should never turn into a big loss. This is a
lesson in stop losses as well as money management. I can live with a
number of small losses. Psychologically, I just move onto the next
trade. The ability to take small losses is what separates professional
traders from amateurs
The
errors that occur relating to the trader are in most cases avoidable and
inexcusable. The first is occurs during entry and that is the direction
of the trade. Nothing galls me more than wanting to be a buyer and entry
a sell order instead. This kind of error occurs about evenly between the
opening and the closing position.
After
several of these mistakes, I actually designed a new order ticker. My
BUY orders are blue and my SELL tickers are red. I keep my tickets with
me – so when it comes time to close a trade, I match it up with the
opposite color. This action alone reduced my errors to almost zero.
If you
find yourself on the wrong side on entry – close out the position as
soon as you notice it. There’s no excuse for holding this trade more
than necessary. Close it and start over.
The
second error I see traders make is the failure to either put on their
stop order or to cancel the sucker once the trade is off the sheet. When
I started as a broker, these tickets were written out and handed in. I
kept a ticket file on my desk with all my clients’ GTC orders. Once a
week or so, I would look through them to see if any needed to be updated
or changed. This kept me on the ball because if the client closed the
trade and I forgot to cancel a stop order, any error on the trade was
mine.
Now, I
simply enter my trade online. There is no real fail safe and every once
in a while, I am reminded (albeit costly) of such because I forgot to
cancel the order. Diligence is the key to not making any errors and your
trade tracking system should make some mention of what to do about stops
and other GTC orders.
The next
error is one that I sometimes run into when trading forex. It has to do
with time. More specifically, what time does this thing trade or what
time does it close? I’ve managed to have a few sleepless weekends when I
was locked into a trade over a weekend because I forgot to close the
thing on Friday before the market closed.
There
are dead hours when trading forex. I call them dead hours because when I
find myself in one of these zones – I’m dead. These are the times when
trading is very light and the spreads widen to a point where you could
drive a truck through it.
Mistakes
are inevitable because all humans make them. Almost all mistakes are
costly too. Traders need to be aware of the different mistakes they are
most susceptible to and take steps to minimize them where they can.
RAC
The Intelligent Trader
Robert Christy is a
professional trader and the President/CEO of the
Christy Investment
Group, a fee-only Long/Short equity management firm whose goal is to
make money in ALL market conditions regardless of the direction of the
stock markets, interest rates or the dollar.
Over the past 25
years, he has spoken and written frequently for national publications
about business, finance and investing. He advises, educates and mentors
traders through his trading service,
The Intelligent Trader. He lives in
Roswell, Georgia, with his daughter, Ashley and his dog, Coach.
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