Tuesday, March 18, 2008

Three Common Mistakes I'm Hearing From Traders

Here are some of the common issues that I'm hearing from traders during recent coaching sessions. Most of us can recognize ourselves in one or more of these patterns:

1) Becoming Overly Focused on P/L During Trading - Watching your profits or losses tick up and down during a trade; becoming anxious about P/L and letting P/L, not a trading plan, dictate when you get out of a trade. It's a recipe for performance anxiety. By focusing on process goals rather than P/L, you can stay grounded in good trading practices and minimize performance stresses.

2) Trading Much Larger After a Series of Winning Trades - It is common that traders become overconfident after a series of wins and decide to increase their risk by a factor of two or more. This often leads to large losing trades that wipe out much of the profit, generating frustation and discouragement. Just as it doesn't make sense to plow into a trade after a large move has already occurred, it doesn't make sense to plow into risk after a series of profitable trades.

3) Failing to Learn From Losing Trades - Traders often want to put losses behind them and not dwell on negatives. The downside is that they don't learn from their losses and thus miss opportunities to understand what's happening in markets and what they might be doing wrong. This is especially important following a series of losing trades: either you're not seeing the markets well, or you're not acting well on your perceptions. Both scenarios offer learning opportunities that can help generate profits down the line.

It's common to think of trading as a stressful occupation, but much of the stress is self-generated. By staying focused on "best practices" in trading, we minimize fear and frustration and build confidence in our development.

RELATED POST:

Overcoming Performance Stress
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3 comments:

tradelikemike said...

What a timely post! I just shut off my P & L function my software because it's driving me crazy. BTW, that came on my wife's recommendation who got tired of hearing me bitch and moan all day.

Markus said...

"Just as it doesn't make sense to plow into a trade after a large move has already occurred, it doesn't make sense to plow into risk after a series of profitable trades."

IMO, if you win you should risk more (but not in percentage points of your equity), if you lose you should risk less. Ten winners does not mean that your next trade has a higher probability to generate a loss, but overconfidence can make you sloppy.

Cheers,
Markus

Charles said...

I still have a tendency to take profits too soon, especially after a losing day. I just want any profit to see my bottom line increase, just to find out that the profit of the trade could have been 10 times larger if the focus was trading the market rather than trading the profit/loss number.

I found the discussion on the emWave for Stress Relief (BioFeedBack System) on SharpBrains. Do you still use biofeedback?

Charles