Trading Mistakes from Alan Farley# Stock
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Neophytes think their trading mistakes will vanish after a few million hours
of experience but that just isn’t true. Even professionals still make
costly mistakes that should have been avoided. Trading mistakes run the
gamut from mental errors to misguided opinions. The most common ones also
cause the most damage. For example, just consider how much money your
bullishness cost you in the last two bear markets.
Trading mistakes can’t be eliminated but you can curb their considerable
influence. Start by listening to the little voice in your head, and let it
question every decision you make. In no time, you’ll uncover a dozen ways
you’re losing money for no good reason.
Fortunately, we can control our own fates most of the time. To this end, it
’s vitally important to recognize the circumstances that place us at the
most risk of making bad decisions. Realistically, the following scenarios
will keep draining our accounts but their impact can be reduced
substantially when we see them coming, and initiate defensive
countermeasures.
1. Out of Synch – There’s nothing worse than playing a trend in a choppy
market, or a chop in a trending market. Make sure you know the type of
environment you’re trading before pulling the trigger.
2. Pressing The Bad – You don’t want to admit it when you’re wrong so,
rather than cut your losses, you press on with bad positions, trying to turn
lemons into lemonade.
3. Cutting the Good – You’re in a great trade but something inside doesn’
t want that wonderful experience, so you exit with a small profit just
before the position takes off like a rocket.
4. Being Early – You get ahead of yourself by jumping into a position that
isn’t ripe and get shaken out, just before the pattern does exactly what
you expected.
5. Being Late – You’re unable or unwilling to pull the trigger on a great
setup, because you’re waiting to see what everyone else does. As it turns
out, everyone else is ready to get out by the time you’re ready to get in.
6. Bullishness – You think the market is ready to go up after every leg
down, forgetting that real buyers can be real hard to find at times.
Bearishness – You spend more time listening to doomsayers than reading the
charts and miss buying opportunities, even when they’re smacking you across
the face.
7.Ignoring Gravity – Markets go down when they can’t find buyers,
regardless of how few sellers are out there at the time.
Forgetting The Big Picture – You get so wrapped up in current events that
you forget to step back and check out the weekly or monthly charts.
Forgetting The Little Picture – You confuse macro events with micro plays
and let the big picture obscure what’s right in front of your nose.
8.Fear of the Squeeze – The squeeze crushes short sellers in the early
phases of downtrends but your anxiety is misplaced when negative momentum
replaces a two-sided tape.
9.Last to the Party – The fear of missing out overcomes your better
judgment, and you jump in. The trend ends immediately, and you’re stuck
holding the bag.
10.Margin Fever – You have a small account but want to be a big player, so
you overtrade margin and get into a heap of trouble.
11.Getting Even – You lose money and vow to get it back the next day or
next week. Bad move, Charlie Brown, because you’ve just abandoned your
trading plan.
12.Listening to Pundits – You shoot yourself in the foot because you let
someone else tell you what to buy or sell.
13.The Agony and the Ecstasy – Pleasure makes you feel like Mr. Market,
setting you up for a big fall, while pain attracts positions you don’t want
and can’t control.
14.Chasing The Open – You go to bed so excited that you can’t wait for the
next day’s opening bell. Guess what, you’ve just put a big target on your
back.
15.Software Fever – Pretty colors can’t make you a better trader, but they
can make you a poorer one. Sadly, kilobytes are no substitute for a lack of
skills.
16.Lottery Ticket – How often do you carry a position into an earnings
report, hoping to get a pop from the news? Hmm, I thought so.
17.Counting Your Chickens – You forget that profits on open trades aren’t
real until you put the green into your pocket.
of experience but that just isn’t true. Even professionals still make
costly mistakes that should have been avoided. Trading mistakes run the
gamut from mental errors to misguided opinions. The most common ones also
cause the most damage. For example, just consider how much money your
bullishness cost you in the last two bear markets.
Trading mistakes can’t be eliminated but you can curb their considerable
influence. Start by listening to the little voice in your head, and let it
question every decision you make. In no time, you’ll uncover a dozen ways
you’re losing money for no good reason.
Fortunately, we can control our own fates most of the time. To this end, it
’s vitally important to recognize the circumstances that place us at the
most risk of making bad decisions. Realistically, the following scenarios
will keep draining our accounts but their impact can be reduced
substantially when we see them coming, and initiate defensive
countermeasures.
1. Out of Synch – There’s nothing worse than playing a trend in a choppy
market, or a chop in a trending market. Make sure you know the type of
environment you’re trading before pulling the trigger.
2. Pressing The Bad – You don’t want to admit it when you’re wrong so,
rather than cut your losses, you press on with bad positions, trying to turn
lemons into lemonade.
3. Cutting the Good – You’re in a great trade but something inside doesn’
t want that wonderful experience, so you exit with a small profit just
before the position takes off like a rocket.
4. Being Early – You get ahead of yourself by jumping into a position that
isn’t ripe and get shaken out, just before the pattern does exactly what
you expected.
5. Being Late – You’re unable or unwilling to pull the trigger on a great
setup, because you’re waiting to see what everyone else does. As it turns
out, everyone else is ready to get out by the time you’re ready to get in.
6. Bullishness – You think the market is ready to go up after every leg
down, forgetting that real buyers can be real hard to find at times.
Bearishness – You spend more time listening to doomsayers than reading the
charts and miss buying opportunities, even when they’re smacking you across
the face.
7.Ignoring Gravity – Markets go down when they can’t find buyers,
regardless of how few sellers are out there at the time.
Forgetting The Big Picture – You get so wrapped up in current events that
you forget to step back and check out the weekly or monthly charts.
Forgetting The Little Picture – You confuse macro events with micro plays
and let the big picture obscure what’s right in front of your nose.
8.Fear of the Squeeze – The squeeze crushes short sellers in the early
phases of downtrends but your anxiety is misplaced when negative momentum
replaces a two-sided tape.
9.Last to the Party – The fear of missing out overcomes your better
judgment, and you jump in. The trend ends immediately, and you’re stuck
holding the bag.
10.Margin Fever – You have a small account but want to be a big player, so
you overtrade margin and get into a heap of trouble.
11.Getting Even – You lose money and vow to get it back the next day or
next week. Bad move, Charlie Brown, because you’ve just abandoned your
trading plan.
12.Listening to Pundits – You shoot yourself in the foot because you let
someone else tell you what to buy or sell.
13.The Agony and the Ecstasy – Pleasure makes you feel like Mr. Market,
setting you up for a big fall, while pain attracts positions you don’t want
and can’t control.
14.Chasing The Open – You go to bed so excited that you can’t wait for the
next day’s opening bell. Guess what, you’ve just put a big target on your
back.
15.Software Fever – Pretty colors can’t make you a better trader, but they
can make you a poorer one. Sadly, kilobytes are no substitute for a lack of
skills.
16.Lottery Ticket – How often do you carry a position into an earnings
report, hoping to get a pop from the news? Hmm, I thought so.
17.Counting Your Chickens – You forget that profits on open trades aren’t
real until you put the green into your pocket.
