Trading Mistakes Should Not Be Ignored

Trading mistakes.

We all make them.

If you day trade, just by the sheer number of trades that you’re likely to take over time, you will make many trading mistakes.

People new to trading are particularly prone to mistakes. They might not be fully competent with their software or not understand the potential consequences of trading outside of their trade plan for example.

Although mistakes are far less common for more experienced traders, they are not immune from making them.

I’m not sure that many people would claim that trading mistakes are uncommon or non-existent.

However, when setting trading goals, many people fail to account for the potential cost of mistakes.


2 Types Of Trading Mistakes

The first type of trading mistake is really a trading error.

A trading error is somewhat of a glitch in the system –not something caused by a choice but is a lack of skill in using your trading platform.

An error can be something like:

  • selecting the wrong price
  • executing the wrong size
  • using the wrong order type
  • buying instead of selling.

The key part to trading errors is that whatever they are, they are done unintentionally.

Fat finger errors are generally more common in newer traders but you shouldn’t think if you’ve been trading for a while, it won’t happen.

Tracking and actively working to improve your error rate is part of honing your skills in this craft.

The second type of trading mistake is an intentional mistake.

You intentionally choose to trade in a way that is outside of the rules of your trade plan

It could be trading outside of your normal hours, doubling up on a position or trading over an economic release for example.

Biggest difference?

One mistake you mean to do and those that are a legitimate error.


Unrealistic Expectations Are Not Helpful

If you don’t account for the possibility of trading mistakes, that is a big problem.

You may feel like you have a good understanding of the markets and enough of a decent enough strategy to be successful based on a run of simulated performance.

But even if your simulator is close to being an accurate depiction of live performance, people are quick to remove losing trades from their results when they are because of errors and even quicker to forget that they’ve done it.

In this type of scenario, it’s easy to see that a trader funding their account with $5,000 is in danger of being severely undercapitalized.

Bottom line?  Don’t treat simulated as if you will replicate the results.  Account for mistakes and intentional errors because you will make them.


Seeking Perfection Is Dangerous

You may be able to get angry with yourself and still do the right thing, but for many of us, getting angry is the beginning of things starting to unravel.

One mistake can always lead to another and over time, cost a huge amount in account equity.

The trouble is, if you don’t know what your common mistakes are likely to be and moreover, be expecting them to happen, you’ll in effect be expecting perfection.

This is a problem for two reasons.

You will be far less accepting of mistakes when they do happen.

This is dangerous.

Thinking Logically

If you are thinking logically and understand that mistakes do happen, there shouldn’t be a problem.

When this is the way you’re reacting, the result of not achieving perfection is likely to be fear or aggression.

Fear by getting out early or setting tiny stops (and achieving account death by a thousand stop-outs) for example or aggression by allowing yourself to go on a revenge trading rampage – is only likely to lead to more, costly mistakes.

Emotionally driven errors in my experience, also tend to be addressed less effectively.

Someone who accepts nothing less than perfection each time is highly likely to believe they will achieve it. With this kind of misconception, it isn’t uncommon for a trader to not track the cost of their mistakes at all or work to address them.

If you know what your mistakes are, track their impact and have techniques for dealing with them, they’re far less likely to result in catastrophe when they do occur.

Success in trading is just as much about knowing yourself as it is a trading strategy that works.


You Will Make Mistakes – It’s OK

Planning for the possibility for trading mistakes can help you to be realistic in assessing the potential performance of a strategy and identify an amount of account capital you might need.

Being able to let go of trading mistakes when they do happen but still working to reduce their frequency, can save you a huge amount in account equity and emotional capital.  Once you mentally being to unravel, trading can become incredibly painful.

Finding the balance of acceptance of trading mistakes and trying to minimize them isn’t always the easiest thing, but if you fail to address this at all, it will be more than likely cost you every dream you have with trading.

Author: CoachShane
Shane his trading journey in 2005, became a Netpicks customer in 2008 needing structure in his trading approach. His focus is on the technical side of trading filtering in a macro overview and credits a handful of traders that have heavily influenced his relaxed approach to trading. Shane started day trading Forex but has since transitioned to a swing/position focus in most markets including commodities and futures. This has allowed less time in front of the computer without an adverse affect on returns.