They said that doing the same thing over and over again and expecting a different result is insanity. Learning from our mistakes is one of the most important component of our growth. We can read all the books we want on theories and what mistakes to avoid from other people's experience, but experiencing it ourselves is invaluable. I will narrate here some of the top mistakes I made when I was still new to trading the market, hoping that this will inspire self-reflection from other traders.
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| My trading PC a few years back :) |
1. Not having a trading plan of my own
When I was really new to trading, I would buy stocks impulsively without any plans at all. If I saw any stocks trending on social media, I would get excited and will decide to try and maybe buy some of it. I can't remember any of that trades ended of me getting substantial profits.
You can't rely on following other people's post on social media, most of them are posting stocks they already have positions in and they actually just want you to buy and help their stocks go up in price so they can sell it with a profit. I still see a lot of newbies joining many different groups in FB thinking that the more groups they join the more good tips or rumors they'll get. This is sadly not true, I believe that almost 95% of posts in social media are either people hyping up their positions or newbies trying their hands on TA or Fundamental analysis. Social media is the easiest place to get validations since we can get instant feedback through likes and comments; and some people get satisfaction from this.
The best thing to do is create your own trading plan. Make your own research and set a definite buy and sell plans for your trades. Create every possible scenario in your mind and make a definite action plan for every scenario to avoid surprises. This way, you'll be trading your own plans and not just become a pawn in other people's trading plans.
2. Over-trading
I used to trade like I need to earn some cash everyday. I felt like I need to take every opportunity I see or I will miss a possible profitable trade. This made me jump from one trade to another hoping to catch a good trade.
I also trade a lot of stocks at once. Maybe I was thinking that the more stocks I buy, the more chances of me hitting that one lucky trade. I did get lucky once in a while, but mostly my losers will cancel out my gains or worst surpass it.
My solution is to focus on a few good stocks, try to get significant volume on them and ride the big moves. Sure, you'll get some profits off quicker trades but they'll never be significant to affect your entire portfolio because it is difficult to get significant volume on a quick trade. My goal is too catch big moves with volume. Longer time-frames and getting significant volume results in bigger profits, at least in my experience.
3. Trading for excitement
I used to tell my friends that I love trading because it is exciting. The ups and down in my portfolio is actually parallel to the state of my own mood. I felt down when I am on a losing trade and I am euphoric when I'm profitable. The swing from one emotional low to another high is addictive, but it is not filling my bank account.
If you trade for excitement, stop immediately and reflect. I'm serious. The market is not the place to fulfill your needs for excitement. There are surely other adrenaline-producing activities one can do outside the market.
The easiest way to asses yourself is to ask yourself this questions:
Am I trading because it's cool and it excites me?
Are weekends boring to me because there is no trading?
Does my mood reflects my portfolio's gains or losses?
If you answered YES to any of that questions, your'e "probably" trading for excitement.
The easiest solution to this is to assess yourself and think deeply why you are trading. It is normal for us humans to feel happy and sad in relation to a win or a loss but the most important thing is to identify your definite chief aim in trading. Was it to get excitement or was it to make money?
Don't treat the market as a hobby, hobbies don't give profits but instead it cost us money. Find excitement outside of trading; play sports or engage in some adrenaline-producing activities outside of trading. Emotions gets in the way of making rational decision in trading.
4. Over complicating my system
Iv'e studied almost all TA indicators used and Iv'e also read many books on FA. I used to believe that the more indicators I use, I can better fine tune my entries and exits flawlessly. I used to love matching indicators like MACD, RSI, Bollingers band, PSAR and Fibo retracement and many more hoping to find that perfect stock. Can you imagine how chaotic my charts looked like back then? I now believe otherwise, as I am only using price action, volume and some little info about the stock's fundamentals.
In my opinion, most of the indicators are lagging and they are of little importance. Focus on a few indicators that works for you instead. Stick to one strategy and master that, instead of polluting your charts with many different confusing indicators.
5. Not doing self-evaluation
I used to trade blind; I have no goals and I am not assessing my progress. I don't even know if I am doing any progress at all or if my system is really working as I believe it is.
Without self-assessment, you won't know your mistakes; not recognizing those mistakes, won't give you any chances to correct them.
Review your system and study your past trades. What reoccurring mistakes are evident? How can you correct them?
Measure your progress. How's your performance compared to last month or last year? When you applied the changes in your system, did it affect your portfolio's performance? Are you satisfied with your progress? What improvements do you think are needed to enhance your results?
To improve, you have to continually measure your progress and make the necessary adjustments.
Conclusion
Studying past mistakes are vital to our success as traders. Experience is the best teacher, the lessons will last and stick to us longer than the knowledge we got from reading about other people's experience. These above are my own personal experiences and I encourage everyone to review and study their past mistakes too. You'll learn more studying your past mistakes than studying other people's mistakes. All it requires is an honest assessment of oneself.
Portfolio update:
Sold my $MEG last Friday with only 1.54% gain as my trailing stop was hit.
Current positions $IMI (+103%), $WLCON (+46%), $STI (+27%)
Cheers
Alex
