The most common mistakes a new trader and struggling trader make.

Trading is painful. Without experience it is hard to tell the difference between the long term effects of touching the hot stove for a second or a minute.  It all feels the same. The immediate response is to change something. Eventually, you completely understand the risks and realize that you are eventually going to touch the hot stove.  Knowing that you are going to get burn the shift to minimizing their effects naturally happen.  The comfort comes from knowing that you can take your hand off of the stove at anytime and a track record of executing in your best interest.  The point is not to prevent being burnt, it is to limit the damage.

Most common changes

The most common changes are more studying, adding an indicator, or adjustment of stops.

  • More Studying (of the wrong thing) – We are taught from the beginning of time how to take tests.  We memorize the material and we do well.  This tendency continues with trading.  We stare and stare at charts hoping to memorize it for the test tomorrow, inevitable finding out that the test has changed.  I hate to be the bearer of bad news but the easiest thing to do is to evaluate a chart.  There is little to no competitive advantage.  There are three basic components of trading; the market (chart), the trader, and the relationship between the two.  The long term and repeatable solutions come from the trader and relationship components but are also the hardest earned.
  • Adding an Indicator or 10 – You visit a website or attend a webinar and learn of the latest and greatest indicator with a 9999% win rate.  You add it and proceed to get dismantled. Once again it usually is not a market issue, it is a trader and relationship issue.  As you build your strategy, think long and hard about the strengths and weaknesses of each type of indicator or analysis. The same stigma behind taking a hot stock tip from the cab driver should be attached to adding the latest and greatest indicator.  IT IS THE EXACT SAME THING.  Now I am not advocating going down with the ship but take great care with adding and subtracting.  Each time you do, you see the market in a different way and have to start over (will illustrate this later.).
  • Adjusting stops – “If I had just taken one more tick of risk or moved my stop down a tick I would have made money.”  Then what?  Is it enough to retire?  Guess what, the more risk you take, generally, the longer you are in a trade.  Hope is a poor substitution for trading capital. “I moved my stop and then I got out at breakeven!”  Really?  That is a success?  Your goal was to get in the market, almost lose money and get out at breakeven minus commission?  Have a reason for what you do and live with the consequences. It really blows to get a stop taken out but it opens up new opportunity.  My attitude has changed over the years.  At first, my immediate reaction was anger and it switched to “I paid for the lesson, I better get my money’s worth”. And sometimes there is not a lesson or the lesson is to not do stupid sh*t.

The difference between a new trader and a struggling trader is a new trader does not have experience and the struggling trader does not use theirs. Experience makes it possible to see more of the picture; the market, the trader and the relationship between the two. 

Experience.fw

When a change is made it adds to the picture.  The bigger the picture the less the picture changes.  Once again I am not advocating not changing but all changes should be taken with great consideration because it is necessary to rebuild the picture.  

Experience2.fw 

Adding to the first picture makes the picture almost unrecognizable. In the second picture it changes but is still recognizable.

Conclusion

It is ok to get burned, it happens.  Amplitude matters more than frequency just as long as you are improving.  Expend as much or more energy when adding as subtracting. RECORD, RECORD, RECORD, the difference between perception and reality is never wider than when the market is punching you in the face. Study the right things and change when necessary.  Remember, no one else is more responsible for your output than you are. Proceed accordingly. When you move your stop to take more risk, generally, a unicorn dies.  DON’T KILL UNICORNS.

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