Even when you become a profitable trader, some trading mistakes just don’t go away. The difference between a consistently profitable trader and an unprofitable one is not that he doesn’t make mistakes. The profitable trader’s mistakes not only occur less often, and but also result in minimal loss of capital. Even after almost 2 decades of trading, I will still make some of these mistakes almost every month. These types of mistakes almost never completely go away. So it is crucial you learn how to minimize their damage and to take precautions to minimize the probability of them occurring. Here are 3 common trading mistakes even profitable traders make:
Getting in too early. Chasing. Getting out too late and letting a profit turn into breakeven or loss. Every single trader, no matter how proficient, makes these mistakes at least once a month. If you make these mistakes more frequently and they are preventing you from being profitable, it is likely you are trading a system with no edge, or you are trading emotionally. Chasing is one of the most common way traders will mistime their entries. Sometimes FOMO gets the best of us, and we jump in way too high. Getting too early is just as bad. Be patient, and wait for your setup to fully form and trigger. You will never be able to buy the exact bottom or sell the exact top. Do not measure successful timing in trading like that. Instead, strive to take the meat of the move, and accept that you will get the perfect entry or the perfect exit. Focus on being a profitable first and foremost.
“Should I stay in or should I get out?” How many times do you ask yourself this question once you are in a trade? When you are watching every tick of your positions, it is easy to overanalyze the stock and a think a major trend change has occurred, when it is actually just a normal fluctuation in the stock price. Stocks don’t just move straight up or straight down. Don’t let small market fluctuations scare you out of your positions once your setup has triggered.You can simplify your trading a lot if you just worry about two scenarios once you get in a trade: What happens when the stock hits your target price, or what happens when it hits your stop price. Everything else that happens between these two prices is just noise. Always have a plan going into a trade, and stick to it.
Trading after a losing trade is difficult for traders of all experience levels but is especially hard for newer traders. It is tough to remain confident and unemotional after losing money. The natural reaction is to try to make back the money you just lost. What often happens after is that you start to trade emotionally, and you start to put on a string of losing trades. You start taking low-quality setups, and you lose even more money. Revenge trading can turn normal red day into a huge red day where you wipe out weeks or months worth of gains. To prevent revenge trading, setting a daily max loss will help a ton. This will prevent you from spiraling out of control and losing huge sums of money in just one trading day. For more tips on how to prevent revenge trading, check out this article here.