My top 5 biggest mistakes in trading and what to do about them!
By: Alistair Schultz - Chief Market Analyst
Join ACY Securities Chief Market Analyst, Alistair Schultz, in this tutorial video as he explains his top five mistakes that traders make and how to avoid them.
In this video, I'm going to be listing out my top five biggest mistakes in trading and what to do about them. These are from my own experiences very early on in my career. So let's get straight into them.
The first one is overtrading, it's a great way to really give back your profits. Of course, if you are trading too much, you'll likely know about it ahead of schedule or before you even realize it just not right there as recognition. Sometimes you need to take that step back to be able to walk away from the charts to recognize that it's actually happening. If you are finding yourself doing thousands of trades a day, then clearly there is a level of overtrading and your focus just isn't going to be the same. You can get also very emotional about these sorts of situations. If you find yourself in a losing position and feel that you have to trade your way back into a profit, that's one of the big indicators that you are overtrading.
And when you were trading emotionally, you're not helping yourself. You're not helping your balance book, and you're certainly not helping anyone else around you. So make sure that if you do feel yourself getting a little bit anxious or you're getting concerned about overtrading, then it might be time just to take a break for a minute and come back at it with some fresh eyes. It's really damaging way to actually hurt your account, because you will look at the charts with the same bias that you had before, because you're just not thinking quite as clearly. So make sure you take the break, put some rules in place as well. If you start noticing that you're feeling this way or that you're seeing that you are overtrading, then take that step, say that, okay, I'm going to take a break for 20 minutes and come back and have a look and see if I've got some fresh eyes.
If that doesn't work and you do it twice over, then you come back and the next day you come and look at it. If that doesn't work again, take a couple of days. So put some rules in place that you can actually have as monitoring points or metrics that allowed who would assess whether you're looking at the chart properly. Of course, this is going to be really impactful. You'll find one day you use this sort of technique and you'll come back to the chart and look at it and go, what was I thinking? So it's very important to think about that sort of scenario and plan around it, add it to your trading plan. Very important.
The next one is having grandiose expectations. You quite often will find, people will think that you can put $10,000 in or a thousand dollars in and pull out a hundred grand or even a million dollars by the end of the year. Trading is like a business. The more you treat it, like one the same results you're going to get. So if you put part-time efforts or part-time results into your trading, expect to get part-time returns. If you're putting full-time results and full-time effort into it, then you are going to obviously get full-time profits from it as well.
Think about every trade as a business decision, this is a very important factor. Most people will kind of not accept that sort of moment. They think of it as a little bit of a hobby or a side job or, or something along those sorts of lines. Think about what you would do in your own business. If you were running your own business and you came across a pretty hard or difficult decision that had a fairly high expenditure, look at it and go, what would I do? Is this the right decision to be making? Of course you have to be realistic about your goals as well. Obviously, if you're putting a thousand dollars in, you're not going to be a millionaire in a week's time. So be realistic. Think about what a business success looks like to you and apply some of those same metrics to your trading. And you'll find you'll have a much happier experience with it.
The next one to look at is chasing the Holy grail and I'm guilty of everything that we go through in these charts I've done where everyone has to sort of go through it before they get the experience with low and otherwise. But when it comes to the Holy grail, the pro tip is there. Isn't one at all. The amount of time I spent in my youthful years, looking at where there might be a new trading strategy or the next best thing, or this is the one that's going to make me all the money. There's no such thing. There's no trader has the perfect system. It requires dedication. It requires effort. It requires knowledge, understanding, skill and everything else with it, but it also requires you to have a disciplined learning method. You need to be on this all the time, researching and notes, looking into more skills and development on that front. So stop chasing the grail and spend your time rather in a demo account, improving your skills and all understanding what actually goes into financial markets and the areas that you might be playing with and how they all integrate with one another. That gives you a much better outcome than trying to spend hours upon hours, going through forums or chasing down the next best trading strategy.
Now doubling down is one that lot of people do tend to get into. It's often derived from mountain gal practices and it's not a good result. It never has been. It never will be. Adding to a losing position, almost always ends in tears, particularly in the early days, it's usually due to having a directional bias. So sometimes it does fit into that memorandum of overtrading because you say, Oh, it's going against me. I need to start adding more positions to it, but that's not necessarily always the case, but it usually is. It means that you might've looked at the chart go and we're in a downtrend. And clearly the trend has changed, but you are seeing to focus where you're looking to narrow. You're looking at a smaller timeframe, five or a 15 minute timeframe, or perhaps even after the hourly. So often you're missing that piece of the puzzle that you really need. That's going to just change your idea, change your mindset and give you an idea to look at something a little bit differently.
So if you are finding yourself, doing these doubling down before you do it, check yourself, make sure you understand what's going on around you take a breather, walk away for a minute, come back to the charts and go, Oh, maybe this isn't what it looks to be to begin with. It's better to cut your losses than to add to them. So make sure you try not to use this method ever.
The next one is getting married to your position now getting married to your partner. All good. No problem. They're getting married to your trading positions. That's bad. So don't try and do that. As often as you can often, it's a result of previous bad habits. You'll find what's happened in one week when we double down or when we look at overtrading, we get married to the idea that our position that might be losing is really going in the right direction. And it's going to turn around in any second, any minute, any moment. And it's all going to be fine, but instead we start seeing our position move further and further away from our entry point. And we see the red balance starting to get bigger and bigger and bigger. So this, even though it is often a result of bad habits, and once you're in it, it's very, very difficult to walk away. You have to do your best to do it. You need to be able to close off that position and not be emotional about the money you need to kill that trade. As soon as you start feeling like maybe I'm in the wrong direction here.
Of course, every now and again, you will have that moment where you go, no, no, I'm in the right position. No, no, no. I got to kill it. You kill it. And then it goes the direction you want it to go. But unfortunately that's the life of trading. So it often means though as well that you're likely trading a little bit too heavy. So reduce those position sizes, make sure you are trading on smaller side, so you don't feel awkward or emotional about a position. So you do have that ability just to kill it off and move on to the next one. It's the best way to really go.
Now, that's all I've got for my top five mistakes that I've made in my early career. And hopefully you can learn from them and not implement some of the things that I've done to try and stop myself from getting into those scenarios.
Now, if you have any questions where you're feeling like you're in the same sort of boat and want some more help, let me know, send me an email [email protected] or hit me up on any of my other social media channels. Of course, don't forget to like subscribe to this video so you can get more great content from me and ACY securities in the future. Have a great trading day ahead.