Everyone makes mistakes! That’s normal and that’s good. If you make mistakes it means you are doing something. But it’s important that your mistakes have a small impact on your trading and life. Otherwise you have a problem …
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.
- Make mistakes transparent: Collect every trade in your trading journal and diary. Analyse them afterwards and find improvements.
- 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.
- 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.
- Use automation: You can automate a lot in trading, f.e. scanning for stocks, alarms or entering orders. This helps you to reduce mistakes.
- 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.
- Checklists: A checklist can help you to stick to your rules. It’s simple and very effective.
- 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.
- 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?
- 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.
- 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.
Here is a small list of recommended trading books about this topic.