What are the most common mistakes that traders make?
Kel Butcher has come out with a new book that offers perspectives on this issue from a variety of people who work with traders, including Van Tharp, Larry Williams, Jake Bernstein, and yours truly.
The mistakes include everything from poor risk management to allowing emotions about the last trade to affect the next one. It's a very practical introduction to trading psychology: how trading impacts psychology, and how psychology can influence trading decisions. Among the specific topics covered are making entries into positions too complicated; paying big money for questionable trading systems; mixing time frames and strategies; failing to have a clear exit for positions; lacking a clear trading plan; overtrading; and jumping into the market before developing proper skills.
Taking the advice of the 20 chapter contributors could save a new trader considerable money and grief. Kel does a nice job in each chapter of weaving together the material offered by the contributors.
My own chapter? The mistake I chose was failing to align one's own trading strengths. Many traders so focus on what is *not* working in their trading that they never get around to identifying and building on their strengths.
A trader recently explained to me that he was basically breaking even in his trading. His winning trades were larger than his losers by a good margin, but his percentage of winning trades was relatively low. My advice was to investigate his winning trades closely--the setups he was using, the times of day he was trading, the market conditions at the times of the trades--so that he could identify clearly what was working for him.
By process of elimination, this also would help identify where a majority of his losses were occurring.
The idea, however, is not to improve the losing setups or to get him to trade better in (for instance) slow market conditions. The idea is to simply stop trading the losing setups and conditions and focus his business on where he is profitable. By aligning with your strengths, you can can expand what you do well and not become mired in areas of relative weakness.
The more you know about your trading--the good as well as the bad--the better you'll be able to guide your trading as a business.
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5 comments:
Thanks for bringing this book to attention. I have not read it yet, but will definitely read it.
Books are the best investmentone makes. The topic of this book is dear to my heart. I wish I had read and followed such a book over 30 years ago.
If you do more work in this area, it will be my pleasure to contribute. You can reach me at nigam@theAroraReport.com
Nigam Arora
Dr Brett
All I can say is WoW your productivity is astounding, do you never sleep?
To produce such quality posts in such numbers is an inspiration to a newbie blogger like myself.
do you have any tips on time management, organisation because if they are of the quality of your trading advise then I cannot wait to hear them.
Your blog is now the first one that I look for each day. (and your books are now top of my reading list)
Keep up the good work
mark
Personally, I've found too much reliance on "indicators" is the biggest mistake a trader can make.
Of all the 7 figure traders I've met on the street, the most common trait I've found is their "feel" for the markets. They are either long or short based on their feel but do not get married to one indicator that determines their decision making.
On the other hand newer traders get married to "the tape" or technical patterns and our frustrations begin to surface.
Dr Brett,
I am happy to recieve The Daily Trading Coach from my brother-in-law in US.I have cherished this gift very much.The section on "Searching for Edge " with illustration from Quantifiable Edges stands out. I am discussing this section with my students and co-traders at my recently started Blackswan FMB-School.
I feel proud to possess three books of Dr Brett, two books of Victor which complete my bookshelf.
I can attribute majority of my thought process and clarity to the repeated study of "Enhancing Trading Performance "
Gangineni Dhananjhay
www.hilotrader.blogspot.com
A neat trick to try (in 3M style, I came up with this idea by mistake): 1. Print out 3 copies of a chart.
2. Cover the chart with a blank sheet, and uncover it bar by bar, marking the setups you would have taken.
3. Repeat (2) in (a) 2-3 days and then in (b) 10-12 days.
4. There should be some setups which you identified in exactly the same way on all three charts. These are the setups which give YOU a high degree of consistency. Focus on them when trading.
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