hr: Money

Trading the markets makes one a winner and another loser. As my mentor used to tell me, “Markets are summarized by greed, hope, fear and desperation”, all mistakes traders commit including me are always related to the four market moods. I have listed 5 of the most common mistakes we traders make and feel free to choose your own weakness.  

1.       Failing to cut losses

We have to admit that we are humans and we are susceptible in making mistakes. Failing to cut losses not only is expensive for your portfolio, but also a way to wipe it clean.

2.       Adding up to a Losing Position

Cutting loses is bad. Adding up to a losing position is even worse. Some people use this measure to bail out on a position. Simply put you bought 10 shares of XYZ at $50.00 and it fell to $45.00. Some people would buy another 10 shares at $45.00 and sell the whole position at $47.50. Sounds great right? Not really. It is not only getting riskier, but it also gives you more tension in your trading knowing that you are averaging down and might wipe your portfolio clean.

3.       Trading with Emotions

Remember what my mentor told me a while ago? Greed, Hope, Fear and Desperation is the way to go in telling what the current mood of the market is. We have to admit that we traders are motivated with greed, but we also need to understand that in order to be successful in this field, we have to operate like a system, operating without our emotions. Emotions cloud our judgement and logic.

4.       Loving A Position

Yes we understand you made a lot of money in that trade. Even if that issue made you a lot of money previously, you have to take into consideration that past performance is not an indication of future results. No shortcuts are to be made in trading. We really have to do our homework.

5.       Trading the Board and the News

Some trading hours could be boring. And when boredom and impatience strikes traders, all they do is look at the board or the Newswire and stare. Now here comes the fun part, you’ve been staring at ticker symbol ABC for quite some time and you see that it steadily rises to 7%. Sounds great right? You type a buy order at your terminal and the trade is executed. Minutes before closing, you see the ABC correcting and those people who are buying it 2 hours ago are now dumping it. Now you are forced to liquidate and cut your losses. Sounds familiar? Never enter a trade without a trading plan and without doing your homework. What separates gamblers from traders is that traders have systems and plans to follow while gamblers throw their darts at the board.

We have to admit that we cannot remove these overnight. It entails discipline and determination. After all, sometimes you have to get hurt in order to learn, and learning is required if you dream of beating the street.