Every single trader makes mistakes. Usually on a daily basis. And often it’s the same mistake that you’ve made 100’s of times before.
Why? Because no matter how experienced or rich you are, we are all human. This means we all have the same weaknesses, and are subject to the same emotions that are harmful to trading success.
The difference between winning and losing traders is how often you make these mistakes, and how much money these mistakes cost you. Here are 3 trading mistakes that every trader will make, and what you can do to avoid them:
Sizing Incorrectly
Sizing your positions correctly is one of the most important components of profitable trading. A common issue most traders have is that they put on too much size at the wrong time. They want a big winner, so they buy 1000 shares of a volatile stock when they have a $2000 account.
This causes them to trade emotionally and make incorrect trading decisions. They panic when their position goes against them because they cannot afford to lose the money they are risking. They take profits too soon because they are focusing on their PNL instead on where the market is heading. Trading smaller size will actually make you more money because you trade less emotionally.
In this PCG trade I took earlier this week, I shorted too many shares, and lost money because it made me emotional. Although I don’t have the small account issue, I’m still capable of making a gamblers mistake. If I had just scaled in and sized down, I would have not lost money and participated in great setup. Here’s a video recap of my trade I took in PCG:
Entering At the Wrong Time
The entry is everything in trading. The most common reason why traders will get a poor entry is because of FOMO. They were scared of missing a big move so they chased, and bought too high or shorted too low. Always remember that there will always be opportunities in the market every day. Do not get emotional about missing a big move. There will always be another big mover.
In my PCG trade, instead of waiting for the stock to pullback to the 9EMA, I shorted way too low and got terrible risk vs reward on my first trade on it. Stocks with SSR will usually squeeze before they head lower, and I got caught in the early squeeze. I was worried about missing the move down instead of getting a low risk entry near the 9 EMA. If I had waited for the right entry, I could’ve had a much bigger winner.
Taking Profits Too Soon
You will rarely be able to capture the whole move. Leaving money on the table is inevitable in trading. But you should strive to catch the majority of the stocks’ trend. Just because you made money on a trade does not mean you traded it correctly. Your goal is to try to capture at least twice of what you risked on the trade when you take profits.
Taking profits too soon has costly consequences for your trading. If your risk vs reward is poor, you will need to have a high win rate to remain profitable. 1 of your winning trades should be equal to what you lose on 3 trades. If you have trouble letting your winners ride, try to think of where the person with the opposite bias would enter their trade. If you are long, think of where someone would start in short. Be patient with your winning trades, and impatient with your losers.
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