Stock Trading Mistakes

I think every experienced trader will have their own list of stock trading mistakes they've made over the years and they're likely to be very similar to other traders mistakes.

One of the most common mistakes made is when a trader has a loss as a result of a closed trade, and they automatically consider it as if they made a mistake.

This is one of the most important misconceptions to overcome. A loss in trading or investing does not automatically mean you made a mistake, only that you were wrong. There is a difference.

Being wrong is like picking lottery numbers and coming up empty handed. You didn't make a mistake, you just didn't pick the winning numbers, you were wrong.

Making a mistake is like being given directions to install a window and then having it leak as soon as it rains, only to find out you skipped over a step while installing the window. You made a mistake by not following the directions and are now at a loss.

Stock trading mistakes are made when you know what to do, either from experience or from your written trading plan for example, yet you do not follow your own plan or rules.

If you have a loss as a result of a closed out trade and see that you've followed your trading plan, then you have not made a mistake at all. On the other hand, if you have a loss as a result of not following your trading plan, then you have made a mistake. The mistake was not following your trading plan., not that you have a loss.

You can also have a profitable trade and have made a stock trading mistake at the same time. This is just as bad, if not worse, than having a loss along with a mistake, because the profit makes us think we should keep doing what we did and not follow our trading plan.

Here are a list of common stock trading mistakes you may encounter:

  • Using a larger than normal position size after a loss, or losses, to make up for the loss(es)
  • Switching over and trading stock options to make up for the stock trading losses you've had, by thinking you can take advantage of leverage to increase your profits (which you've never had to begin with...)
  • Using the total amount in your trading account for each single trade (because you don't have enough money to split up between trades...)
  • Letting losing trades become larger because you don't have a stop loss in place
  • Not selling profitable positions because you have no profit targets or long term position strategy in place
  • Not selling a profitable position at the end of the day when you are a Day Trader only.

These are just a few sample stock trading mistakes you may come across in your own trading journey. Each one of them are mistakes because they would be a result of not following a good trading plan which should be in place.

All mistakes can be taken advantage of by reviewing them, realizing what was done wrong and taking steps to prevent them from happening again in the future.

As an example, if you find yourself using a larger position size than normal to try and make up for previous losses, take whatever steps you need to make sure you don't do this again. If you don't ever do it again as a result from your learning experience, you should never be in a position to have a catastrophic loss resulting from too large a position size.

By working towards minimizing or eliminating stock trading mistakes, you'll be able to concentrate more on developing a profitable trading strategy that works for you.

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