Do You Make Any of These 7 Trading Mistakes?

by Darrin Donnelly on February 19, 2013

One of the great things about publishing a trading newsletter is that I’m able to assume the role of trading teacher.  Not only do I teach other traders how to use the Darvas System, but I also field numerous questions every week from traders all over the world.

I believe that I benefit from answering these questions just as much (if not more) than those I’m providing the answers for.  When I answer the “how’s” and “why’s” behind every trading technique I use, it helps me to take a step back and remind myself of the principles that work.  It clarifies and reiterates the process for me, which is a great benefit to any trader.

I’m also able to see, again and again, the most common problems that plague traders.

With my newsletter now in its fourth year of publication, I can tell you with certainty that there are seven brutal trading mistakes that are repeated again and again by traders from many different backgrounds.

Review the list below and make sure you’re not committing any of these seven deadly trading sins…

1. Trading Too Much

Without a doubt, over-trading is the mistake I see most often.

For some reason, new traders often believe that the more one trades, the more money they will make.  In actuality, the opposite is much more likely to be true.  As trading legends like Jesse Livermore and Nicolas Darvas often advised, it’s the sitting that makes the big money.

Avoid trading too much.  Focusing on fewer stocks and fewer trades will almost certainly improve your results as a trader.

2. Changing Strategies Often

This is a natural extension of mistake No. 1 and almost every trader I know has fallen into this trap at some point in their career – usually when they’re just starting out.

Here, a trader dives into a new strategy he or she is excited about.  After a month or two, they decide to try out a different strategy – usually a shorter-term strategy.  This process usually repeats itself for about a year and causes the new trader to suffer substantial losses by trying multiple strategies.

Research proven systems, decide on the one that fits your personality best, and then STICK WITH IT.  (Remember, every strategy will have periods of underperformance from time to time; don’t make matters worse by constantly jumping over the fence because you think the grass is greener on the other side.)

3. Letting Fear Dictate Your Trading Decisions

It’s often said that the emotions of fear and greed drive the market.  I think it’s mainly fear.  Fear of missing out on a winning trade and fear of being too greedy.

Emotional trading has one solution: strictly following clear and precise rules.

4. Letting Pride Dictate Your Trading Decisions

The problem of trader pride has been made much worse due to the Internet and social media.  In the past, bragging about a trade to your brother-in-law was enough to keep you holding onto a winner that turned into a loser, but now I see legions of amateur traders trying to “save face” due to the predictions they made public on the Internet.  They’re so scared about hurting their self-proclaimed reputation as a stock market expert they forget that true market experts suck up their pride and cut their losses fast.

Drop the ego.  All traders have losing trades.  Winning traders cut those losers quickly.

5. Trying to Control the Market

You can’t control the market.  What you can control is how you react to the market.

It’s amazing how many people think that stocks should go up in a straight line and should be sold at the top of a run.  That’s just not how the market works.

A winning trend will typically move higher in a “two-steps-up, one-step-back” process.  The key is to not get rattled out of a trade when it takes a “step back” in a constructive manner.  Again, having precise rules will help a lot in determining what a “constructive” pullback is.

6. Risking Too Much on a Trade

I have to field this one a lot.  Many of my newsletter members think I’m too conservative.  And yes, I have to explain, I believe Nicolas Darvas himself risked way too much on his trades.  But the truth is that most new traders risk way too much on individual trades and this forces them out of the game quickly.

I know it sounds clichéd, but trading is a marathon and not a sprint.  To survive this game long enough to make the really big money, you simply can’t risk more than 1-2% of your portfolio on a single trade.  Many successful traders risk even less than that.

Simply stated, you should never risk more on a trade than you can comfortably afford to lose.  When you risk too much on a trade, it causes you to make dumb decisions.

7. Quitting

It’s been my experience that the desire to quit trading (or change strategies) is at its highest level right when a losing streak is about to end.

Losing streaks are a part of trading.  Yes, they can be painful, but this isn’t a game for the weak.

To beat the market, there is no substitute for perseverance.  As Mike Ditka puts it, “You’re never a loser until you quit trying.”


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