What’s a trading mistake?

A famous trader said that everything is a mistake until you follow your rules. Sounds simple, but it isn’t easy.

A losing trade is not automatically a mistake. Only if you broke your rules and the trade is a loser, it is a mistake. But winning trades can be a mistake, too. In that situation you only had luck.

In short: Trading mistakes are based on not following your trading rules. Besides that there are mistakes in order execution or technical mistakes. For example you can make a mistake while entering an order. But in that situation your process or routine is not good enough, because normally you should double check your orders.

Why reducing trading mistakes?

Mistake mostly cost money! It’s unimportant if it’s a losing trade or an execution error. If you reduce your mistakes, you will save money and improve your trading statistics.

In addition you will strength your mindset and improve your psychological situation. You gain self-esteem and you can rely on yourself.

10 tips to reduce trading mistakes

Here are a few tips how to reduce trading mistakes. They will help you to improve as a trader financially and psychologically.

1. Make mistakes transparent: Collect every trade in your trading journal and diary. Analyse them afterwards and find improvements.
2. Create a ruleset matching your personality: A lot of mistakes occur because the trading rules are not compatible with the trader. You have to change this! The rules must use your strengths and not your weaknesses.
3. Build and improve processes: Everything you do as a trader should be based on processes. Only if you have a defined process, you can repeat it again and again. Over time you must improve that processes with learnings and new information.
4. Use automation: You can automate a lot in trading, f.e. scanning for stocks, alarms or entering orders. This helps you to reduce mistakes.
5. Work on your mindset: A lot of mistakes are based on wrong imaginations or values. In example: If you think that a trader has to be in action all the time, you will force trades. Instead you could have a different picture of a trader as a focused and calm person.
6. Checklists: A checklist can help you to stick to your rules. It’s simple and very effective.
7. Use statistics to find mistakes: If you collected hundreds of trades in your journal, you can use this data to find mistakes. Often mistakes have something in common. Analyse your journal and find the commonalities of your mistakes regularly.
8. Score trades afterwards: If a trade is closed you should not only put it in your trading journal. Review the trade and score it: Was it a good trade? Was there a mistake? Were all rules fulfilled? Would you make this trade exactly again?
9. Review your trading journal with a second person: This helped me a lot! I sent my trading journal to a previous mentor and he reviewed my trades for me. He found a lot of things to improve and commonalities of bad trades.
10. Quality instead of quantity: Work on your quality everyday! If you improve your quality, it’s only a question of scaling to make a lot of money. Reduce bad trades, select the right time to trade and select only the best trading candidates. Then increase position size and use your edge.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”007174908X,1118936817,0996307931″]

Der Beitrag How to Reduce Trading Mistakes: 10 Tips erschien zuerst auf Trading Blog - Julian Komar.

Below you find my top 10 learnings. I collect that wisdom from my mentors, Market Wizards and other traders. They helped me to get better and better as a trader.

1. Chart your own equity curve

This is a recent advice I learned from Olivier Tischendorf. He wrote a great article about that: How To Profit From Charting Your Own Equity Curve.

If you chart your own equity curve day by day you will have a direct feedback of your trading. You know exactly how you perform, when it’s time to be aggressive and when it’s time to step on the break.

More information in my own article: Learn to manage your own equity curve.

2. Sell a trade quickly if it drops below the breakout point

I am convinced that a trade should be a winner directly from the beginning. All my huge winning trades shows that characteristic. If the trade instead is falling back below your entry point you should sell it quickly. Something seems to be wrong.

Such a radical trade management is not an approach for everyone. You must be very disciplined. But the good thing is you can lower your average loser a lot.

Learn more about it: An example in trade management – the breakout stop.

3. Trade only the strong stocks

There was a time in my trading career where I trade stocks which dropped and then started a new trend. You can name such stocks as reversal stock or turnaround stocks. There is nothing wrong with this approach but it’s not mine. I was never good in it.

Instead I learned to select leading stocks which are strong, printing new all-time highs and show strong volume characteristics. It helped me a lot!

4. Focus on a trading niche

Of course there are traders out there which are flexible and can trade any market. But that’s not me! I believe in focusing on a trading niche. That’s the only way you can gain a lot of experience.

I focus mainly on momentum stocks and leave other markets for other traders. Rarely I trade forex, commodities or indices.

5. Day traders, swing trades and scalpers do not make more money as other traders

A long time I believed that fast traders are making more money that slow traders. But always if I looked into a trade record of a day trader or scalper I noted that’s not true! In a lot of cases the long term oriented traders made more money. How is it possible? Simple: 5% a month is 5%. The approach to create 5% is not important.

That does not mean that there are no good day traders out there. It only means that you don’t have to be a day trader to make a lot of money.

6. Excessive risk-takers are mostly bankrupt

I always was blended by social traders which had accounts with profits of 400% or 1000% in a short time. I always asked myself: How did they do that?

One day I saw a social trading account of such a trader. It has a draw down of 90%! That’s pure gambling. Of course there is a possibility to recover from that. But in the most cases they close the account and start a new one.

7. Clean and simple charts are the best

If you believe you have to make complex technical analysis, you are wrong. I found out that the best trades have very simple chart patterns. There is no volatility and huge price swings. Follow Patrick Walker on Twitter and you will learn a lot about “clean and simple”.

8. Do everything to protect your confidence

Today I know how important confidence is as a trader. But there is not a universal truth what confidence means. Maybe for you it’s your rule-set and blindly follow them. For another trader it’s his ability to select good stocks. The only thing which all have in common is that they believe deeply in their principles. And that’s why you have to defend your principles and believes against any threat.

There are times when my equity curve shows high volatility. In such a time I start to close positions. Yes, sometimes they still fulfill all rules and maybe I am cutting potential profits, but my confidence is more important. If you have a deep draw down you don’t only lose money but mental capital, too! Ed Seykota said famously: You have to know when it’s time to break your rules.

9. There is intuition in trading

There is a myth in trading that you should act like a robot. There was a time when I believed this myth, too. But today I look differently on that thing because I read a lot about the brain and intuition.

Intuition developed with experience. The more you learn about a thing the more intuitive you get about it. It’s like driving a car or cooking. You know exactly what to do without thinking about it deeply. That same experience you can have in trading, too. If you look at hundreds of chats a week, you intuitive know which one looks good and bad.

10. Working on yourself is the best method to mastery

As I started to read books about motivation, psychology, self-development, philosophy and time management I not only got better in my job, I got better as a trader, too. The basing principles of success are the same in any job. You doing outside of your job influences your job.

I absolutely recommend not to read only trading books. Start to read books about self-development and -management, too. You will find a lot of inspiration and you can transfer a lot of methods into your trading world.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”0735201447,1848549253,014312417X,0062315005″]

Der Beitrag The 10 Best Trading Tips I learned from other Traders erschien zuerst auf Trading Blog - Julian Komar.

The most people want more. They want more from everything they can get: Time, money, food, houses, cars, love and so on. But we know that it’s not possible without giving up something else. That means: To have more money we have to give up time or energy or … It’s always a trade between two goods.

But there is one thing to consider. You can get a lot from one thing if you focus on it. Why? You spend all your energy on one sector. This is a big trade-off but in the end you get more. A lot of successful companies do that. In addition you find the saying “less is more” in many self-help books.

Focus on a small niche and reduce complexity

Trading is not different from the rest of the life. If you want to master something, you must have a deep knowledge about it.

In my trading journey I learned this the hard way. At the beginning I was doing everything I could do. I traded stocks, commodities, forex, certificates … But this was just distraction.

After some time I discovered that I could build much more knowledge and experience if I focus on one thing. I started to focus on only stocks and my trading improved.

Why did my trading improved? Simple: It reduced the numbers of trades I made. And it helped me to focus on situations where I have an edge.

If you trade multiple markets (stocks, commodities, forex etc.) you have to build up knowledge in all of them. You must consider a lot of dependencies between the markets. This can lead to situations where you increase your risk instead of decrease it. The reason: Some trading instruments have a dependency, f.e. Gold vs. USD, EUR vs. European stocks and so on.

To make this more complicated: The dependencies between trading instruments can change. So you can see: This is too complex to manage, especially for a beginner. The only solution is to focus.

Becoming an expert in just one niche

If you focus on a niche, you have an additional edge. You get a much deeper knowledge and experience. With experience you can develop something like intuition.

For me intuition is nothing more than deep knowledge and experience combined. You can apply it without active thinkings. It is engraved in the structure of your brain. It is engraved so deeply that it influenced your feelings. You know it if you feel that something “is not correct”. That only means that you saw the same situation a thousand times before and now your brain sends you a signal.

This  intuition or deep knowledge is linked to the hours of learning. If you spend 1000 hours to learn and repeat one thing you have a deeper knowledge about it. Your brain is trained and build the neural paths to handle that situation perfectly.

If you spend 1000 hours to 4 different things, you only spend 250 hours per each. That means you have less knowledge about one of the 4 things.

Now you could argue that all markets are the same, because they are based on price. Yes, that is correct. But there are small differences of the price-movement of these markets.

On a macro level all markets looks the same. But if you want to master a market, you have to look at the small differences. Remember: A master knows his area in every detail!

What does a niche looks like?

I started as a “jack of all trades”. Then I reduced more and more … I focused on only stocks, reduced my style to just one trading method, concentrate on only US stocks, sliced out the high potential/grow stocks niche, focused on mostly small- and mid-caps … This all helped me to make progress as trader.

It is funny, but the more I reduced and focus, the more progress I made!

If you look at your own trading, ask yourself: What can help me to make progress? This has a lot to do with your strengths and what you like. In the end you must do everything to increase your confidence in your trading. And if your trading method is perfectly fitted on your strengths and what you like, it increases automatically your confidence in it. Why? Because it reflects your personality.

Here an example from myself:

• I like stocks because there is a real supply and demand. You can see the volume and price-action.
• There are many sectors. So you can trade different trends inside the stock market and you can see the flow of money from one sector to another.
• You can trade stocks with a small and big account. The fees are low.
• The movements in stocks can be fast. I like that!
• There are real companies behind stocks. Especially I like technology companies with new today unknown products or services.
• I like to discover and search for stocks which matches my criteria. It is an endless “detective game”.
• You can apply screener on it and filter the markets. I have knowledge about programming. So I can apply it.
• With stocks you only trade small sizes and you can spread the risk between multiple positions.

The upper things are all embedded in my trading methods. I discovered them in the last years where I look at myself and ask me: Where are my strengths? What do I like? What do I think that markets work?

Don’t get me wrong. I am not a fundamentalist. The opposite is true! I make all my decision on price and volume. But it gives me additional confidence if a stock has an interesting story and background which is attractive to investors.

Putting it all together

The journey starts with an analysis of your current trading. If you collected data about your trading, you can take it as a starting point.

If you find out that you have a lot of different setups, trade multiple markets and make tons of trades, there is something wrong. Step back and ask yourself: What will happen if I remove something? What have my bad trades in common? What have my bad trading times in common?

In the most cases you will find out that reducing helps. If you master one thing perfectly the result is better. Think about a carpenter that creates tables. If he focus to create only one type of a table perfectly, he will make more money. Why? Because he has more knowledge about it and can produce a better quality. In addition the more experience helps to reduce the costs.

The same is true for trading:

• The more experience you have in one thing, the more you can pick the best setups and trading environment.
• You can reduce the time you spend trading because you will find the setups faster.
• The number of bad trades will be reduced dramatically.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”1118273052,0132157578,0996307923″]

Der Beitrag Finding your trading niche erschien zuerst auf Trading Blog - Julian Komar.