I like to write lists. Not only do I find the process therapeutic; but it often results in the realization of things not previously considered. So here's a list of the common mistakes that I make.
Having an emotional reaction to a news event. (The unexpected comments out of the G-20 and G-7 meetings recently have been annoying.)
*Solution: I'm a day trader and usually don't hold positions overnight. When something unexpected happens that causes price to violently react, I find it's best more often then not to sit on my hands. I will go immediately flat if I believe my positions are in danger, and have found (the hard way) that it's best not to trade unless I see a highly attractive setup, and then to only play it with 1/2 or 1/4 of my normal position size. When price is more volatile then usual, I find myself eager to "get some action." Resisting and literally sitting on my hands has been the best solution for my P&L.
Not cutting losers fast enough. Everyone who trades has probably heard the "cut your losers short" phrase,
and mostly thought to themselves that it was good advice but utterly failed
when trying to implement it.
*Solution: I don't struggle with this issue very much anymore, simply because I've gone to an intraday-only policy for holding positions on my main account. By forcing myself to go flat at the end of the day, I now ask myself, "What do I expect to get out of this position before I'm forced to cut it at the EOD?" If the answer is less than what I could get for right now, I simply cut it. Using time in conjunction with a TP is how I make it easy for myself to cut my losers short.
Chasing a move.
*Solutions: There are plenty of ways to skin a cat. I occasionally play breakouts myself. However, I've found it's risky to play breakouts when I'm strictly trading intraday. I always like to sell into strength and buy into weakness while playing in the direction of the trend. Look at any chart and you'll see a lot of candles closing in either direction. If there's that much volatility, then chances of getting a good entry are higher if you buy on the "x"th bear candle and sell on the "x"th bull candle. There's a plethora of more variables to consider; but I've found that adopting this mentality has been a big help for my trading. It also typically yields better risk to reward setups.
Overtrading.
*Solution: Go play golf. If I'm not feeling patient enough to wait for my setups, I leave the computer before I do damage to my account. Being patient and maintaining discipline is literally 90% of what it takes to be successful at playing this game. That's your answer for why so many people fail. It's so hard to be perfect in these categories and it only takes one slip to kill an account.
Not taking profit fast enough.
*Solution: It happens, we all get greedy. My general rule of thumb is that it's better to take profit too soon and be extra careful when trading a counter-trend setup and let winning positions run a little if they are with the trend. The key is to get all of your levels mapped out (horizontal S&R.)
Over-leveraging.
*Solution: Don't do it. It's the hardest thing NOT to do. Ultimately we are all trading to try and make money, and the allure of a quick return is powerful. All I can tell you is that every trader I've seen who hasn't had a solid risk management system has been wheeled out of the trading floor on a stretcher sooner or later. The best advice that I've gotten is to repeat in my head that if I over-leverage, my account is as good as blown up. The WORSE thing that can happen to a trader is to over-leverage and make money. That provides positive reinforcement to a potentially fatal habit.
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