Trading Mistakes I Made in My Career
Do Not Trade Based on Any Stock Market Direction Predictions or Pivot Dates: No one can predict with certainty what the stock market will do in the future, so avoid making trades based on that assumption. Never base your trades on a prediction of a specific date when the market will turn, especially if it comes from other traders. Many such predictions are inaccurate, with less than half proving correct even after ten attempts. Never execute a trade based solely on fear and greed indicators or overbought or oversold conditions. These are merely market conditions and not direct signals to buy or sell.
Jumping The Gun: This idiom suggests making a premature move before the conditions are right. There’s a sense of urgency when scrolling through Twitter or watching YouTube videos showcasing traders raking in substantial sums of money each week—tens and hundreds of thousands of dollars. The excitement builds, and the desire to start making money quickly takes over. Without hesitation, you hastily open a brokerage account, depositing a portion of your savings or paycheck, eagerly anticipating immediate trading. The allure of simplicity, thanks to user-friendly interfaces on platforms like Robinhood, entices beginners. The captivating sounds and visual effects of these apps add to their appeal. Once you’ve selected your preferred platform, the experience is akin to a child in a candy store, eager to buy stocks.
Research and learning take a backseat because the process seems deceptively easy, right? Perhaps you’ve absorbed some news, watched TV, or, in the less-than-ideal scenario, sought investment advice from sources like Jim Cramer, leading to impulsive stock purchases. Unaware of how trading truly works, you unknowingly subject yourself to a turbulent emotional roller coaster, likely culminating in financial losses. If your investments happen to yield profits, it’s more a stroke of luck than the result of any solid foundational knowledge of trading. Without building a genuine understanding of trading principles, relying on such luck for future moves is a risky proposition.
Emotion-Driven Decision-Making: This is a clear and concise way to describe to make a trade without emotions. Achieving profitability as a trader hinges significantly on the ability to effectively manage emotions. Much like other crucial aspects of life, success in trading demands proper mental discipline. While possessing a winning edge is essential for navigating the markets, grappling with emotions such as fear, greed, discipline, and confidence can hinder your journey toward becoming a consistently profitable trader.
Revenge Trading: Greed often finds a companion in anger, especially in the realm of trading. After a series of losses, the desire for revenge can take over. Picture this: being stopped out of a trade by a mere cent, watching the price hit your profit target without you – it’s enough to fuel a growing frustration. As this anger builds up, it can lead to a spontaneous declaration of war on the stock market. The thought becomes, “Forget it, I need to recoup these losses.” At this point, trading driven by anger takes over, devoid of any strategic plan.
Reflecting on my early days in day trading, there were times when I executed 5-8 trades in a single day. Reviewing my daily report painted a picture of erratic behavior. One losing trade triggered an overcompensation to recover the losses, only to encounter another setback. Moments of profit surfaced, but they fell short of covering previous losses, prompting me to dive back into trading. This cycle persisted for three or four hours until I eventually gave up, drained and left with either a meager profit or a notably unattractive loss.
Switching between different trading methods:
Technical analysis entails a substantial learning curve, involving proficiency in utilizing charting software equipped with a myriad of indicators, trendlines, and candlestick patterns, among other elements. For those new to trading, the challenge is exacerbated by the array of trading methods available, such as scalping, day trading, swing trading, position trading, and more. Beyond the scope of stocks, one can delve into options and futures trading. While it’s beneficial to acquaint oneself with these methods and even experiment with them, the key is to eventually pinpoint one that aligns with personal preferences.
The objective is to identify your edge—an approach that not only resonates with your interests but also brings joy, fits your lifestyle, and leverages your strengths. Take the time to explore and discover which method speaks to you the most, then commit to mastering it. Consistently applying the same strategy for weeks or months provides valuable insights into its effectiveness for you. You may find that you align well with it and choose to exclusively trade using that strategy, or you might realize it doesn’t bring satisfaction, offering an opportunity to shift focus to another strategy. However, it’s crucial to resist the temptation of swiftly transitioning from one method to another. Doing so may lead to trying numerous strategies without truly mastering any. In the initial stages, consider mastering one method to achieve consistent profits. Once proficiency is attained, gradual exploration of more complex topics becomes feasible. Simplicity, as experienced traders emphasize, is the cornerstone of success. Some traders even concentrate solely on one stock or index, generating substantial profits.
Unfamiliarity With Trading Software Platform Functionality: This highlights the technical aspect of not knowing how to use all of your trading platform features. Trading involves numerous components, and attempting to locate the necessary buttons and functions on a trading platform while making crucial financial decisions isn’t the most advisable approach. These actions should become second nature, akin to the instinctive actions involved in driving a car. Consider a scenario where you need to brake swiftly to avoid an accident. Would it be more optimal to contemplate the pedal’s location, or is it preferable for your foot to move instinctively? If you’re interested in trading options and futures, familiarize yourself with the intricacies of these instruments. Gain proficiency in deciphering the option chain as well.
