Top 10 Trading Mistakes
I have documented my top 10 spread betting mistakes before when trading the FTSE. My improvement as a trader has come directly as a result of analysing these trading mistakes and defining a set of rules to avoid them.
Top 10 Trading Mistakes
- Not trading along key support and resistance levels, or established trendlines on the Daily chart has meant that I’ve missed some cracking 300 to 400 point moves altogether, or that I’ve closed out of positions far too early and left heaps of money on the table.
- Trading impulsively against the momentum after watching the market shoot up or down dramatically. E.g. the FTSE may have dropped suddenly from the open and could be 1% down by 10am. I would then try and go long against the trend hoping for a bounce. It may have worked on occasion, but for the most part, I got my fingers burnt.
- Doubling up when holding onto a losing trade (the original trade usually taken as explained in point #2 above) and hoping or praying for a reversal. My biggest losses came from placing multiple trades trying to salvage a bad trade – I should have cut my losses immediately and saved myself a small fortune.
- Trading using too many different types of strategies and not sticking to one main strategy consistently. I would read about a new strategy and I’d race off to try and implement that to see if it would work for me. Sometimes using oscillators, indicators, breakouts, fakeouts or moving averages, other times using price action and momentum, etc. Better to stick to one strategy and gradually refine that over time.
- Snatching at profits and not letting profits run. After a string of losing trades I would close out a winning trade for 5 or 10 points, when in hingsight, it would have been much better to close out half the trade, move the stops to breakeven, and allow the remaining trade to run risk-free.
- Trading when unable to closely monitor the market. Trading based on a 1 minute or 5 minute charts and finding myself unable to continue to monitor the position closely (when at work or in meetings for example). If you’re unable to actively monitor your positions during the day, you should switch to a longer time frame.
- Not having the patience to wait for good trades. It’s too easy to get bored and switch from a Daily chart, to a 5 minute chart, or even a 1 minute chart, and start trading based on these smaller timeframes. I’ve taken some poor trades which I would never have touched if I was trading the FTSE strictly from a Daily or Hourly chart.
- Not having the confidence to add to winning trades. Says it all really …. Instead of doubling up on losing trades I should have been trying to do just that on winning trades instead, and multiplied my profits.
- Using inadequate stops. There were several trades which got stopped out almost to the point, before the market reversed and headed back in the direction of my original trade. My stop placement may have been too aggressive, perhaps suitable for day trading but certainly not for the overnight trades that I was placing.
- Trading on stats without consulting the chart. Sometimes I would trade using the FTSE 100 Performance Stats without analysing what market was currently doing. This strategy worked some of the time, but not always (performance varies greatly from year to year, month to month, and from day to day) and this resulted in many overnight stop outs.
One of my friends is a broker for a spread betting firm and he was kind enough to share this information with me. Here are twenty common reasons why most traders fail and blow up their accounts when spreadbetting:
- Trading without a plan
- Trading off news – its already factored into market
- Placing wild and unconservative trades after a winning streak
- Trading with too large a position for the account size / captital
- Fail to pre-define the risk on a trade, and add to losing positions making matters worse
- Directional bias – e.g. always going short rather than playing both sides of the market
- Getting emotionally attached to trades – unwilling to take a loss or admit making a mistake
- Over trading – it’s addictive!
- Don’t like losing and unable to take small losses – end up with bigger losers if you don’t ‘cut your losses’
- Don’t let their profits run – snatch at trades taking small profits and miss out on bigger gains
- Not trading what they see – trying to predict what’s going to happen
- Allowing profits to become losses – greed – hoping to make a larger profit
- Trading against the trend
- Inability to stay with their winners – take small profits and miss out on the big winners
- Trying to pick tops and bottoms
- Trading off rumours
- Allowing emotions to overcome intelligence
- Not doing enough research when selecting trades / stocks
- Taking on too many positions – unable to manage them well
- Getting demoralised after a few losers – losing is part of the game!
Hope this helps you with your trading and makes you a successful trader!