Mistakes Traders Make

 

4/30/2026 - It was great meeting with a group of traders for the "ask me anything" webinar with Agnieszka Wood.  A couple of mistakes were addressed in the session very effectively.  Agnieszka discussed the mistake of trying to fix our trading before we've addressed the emotions we've been going through during difficult trading.  It is all too easy to become reactive when we're frustrated.  Stepping back from trading temporarily, recentering, and renewing our search for edge is an effective way to respond to loss.

Peter Robbins raised another great point.  We had been discussing the importance of getting big in trades when our edge is playing out and he noted that there are some environments in which it is not prudent to get big.  That is certainly true of highly volatile, uncertain markets.  Volatility gets us big by itself!  Good risk management takes market environment into account.

As I explain in the Positive Trading Psychology book, the quality most common to great traders is intellectual curiosity.  Great traders love the hunt for ideas.  They love to discover.  That keeps them engaged even when they have small positions in the market.  And that's what gives them the inspiration to put on larger positions.  The best traders love the discovery process every bit as much as they love trading!

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4/29/2026 - Perhaps the greatest mistake traders make is not making enough mistakes.  The trader who is innovating is always going to be getting things wrong, fixing them, and learning in the process.  Avoiding mistakes too often means avoiding growth.

Years ago, I contrasted a Japanese car maker's operations with those of a U.S. car maker.  The U.S. manufacturer ran the assembly line at a moderate speed, ensuring that line workers would keep up with the flow and make a minimum of mistakes.  Indeed, if they had sped up the line, they would have heard from unions in a hurry!

The Japanese company, however, sped up the line every so often and then scanned to see where things broke down.  They would then fix those areas, maintain the higher speed, and then speed things up some more.  The U.S. company saw flaws in the assembly line as something to avoid; the Japanese company sought flaws for continual improvement.  Which company do you think had a track record for most reliable vehicles?

There's an important lesson here.  As long as we're managing risk the right way, we want to embrace our losses and use them as fuel for our improvement.  Avoiding mistakes is perhaps the most subtle of all mistakes.

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4/28/2026 - The problem that beginning traders make is that they are too eager to take risk before they've developed robust processes to guide their generation of ideas, sizing, risk management, trade review, etc.  The problem that experienced traders make is that they are fully grounded in routine and don't spend enough time and energy developing new sources of edge.  In the first case, the trader is too eager and takes imprudent risk.  In the second case, the trader lacks inspiration and lacks novelty and innovation.

It's not so unlike the problem that occurs in romantic relationships.  They start with excitement and newness and run into challenges channeling that energy into daily coordination of individual needs.  Over time, the constancy of daily routine makes it necessary for couples to find new energy from fresh interests and activities.  

Every relationship should be comfortable and stimulating and challenging.  Our relationship with markets needs to be comfortable enough that we can handle day to day challenges, but also stimulating in the exploration of new sources of edge.  

Success is a balance between stability and innovation.  Without excitement and curiosity--and a stable way of channeling those--trading (and our market edges) grow stale.

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4/27/2026 - I've consistently found that the majority of directional traders make their living from managing risk well (not having large losing trades) and from having (often only a handful) of large winning trades during a year.  They make their money when they are *really* right and they take advantage of that.

The big mistake that traders make, leaving them as good traders but not great ones, is that they have a clearly defined criteria for finding opportunity and identifying entries and exits.  They *don't* have a clear process, however, for taking full advantage of those situations when they are *really* right.  In other words, they don't have a clear process for getting big in the right trades.

This is partly a trading psychology issue.  Traders clearly visualize being wrong but not being amazingly right.  They have a process for limiting losses, but not maximizing gains.

They think cautiously and prudently, but don't think greatly when the proper time comes.

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4/26/2026 - What makes our trading psychology is not whether we make mistakes, but what we do with those mistakes.  In the coming series of posts, we'll take a look at common mistakes traders make and how they can use those mistakes to improve their trading.

An unfortunate number of traders have missed the bulk of the large upside move in stocks since the lows late in March.  Out of a sense of prudence, they didn't want to "chase" the rebound and so waited for a pullback.  The anticipated pullback simply hasn't occurred.

As the late Ayn Rand taught, when things don't make sense, it's worthwhile to check our premises.  What's the premise that traders are relying upon that is leading them to miss opportunity?

Quite simply, traders are assuming that pullbacks are measured in price action alone.  If we don't see a correction in price, traders assume we haven't seen a correction.

But suppose we measure correction in other ways.  For example, off the late March lows, we subsequently saw breadth--as measured by the percentage of stocks trading above their three-day moving averages--pull back to 47.47 on April 7th and then back to 32.39 on April 10th and then back to 49.39 on April 15th.  All of these pullbacks occurred at higher price levels, because a few groups of stocks kept the averages higher even as the bulk of stocks retreated from their recent highs.  From a breadth perspective, the powerful rally offered *many* opportunities to get into the rally.  

Price alone does not define the market. 

What we look at determines how we trade. 

Asking New And Better Questions

 

4/24/2026 - The best questions are sometimes the ones that you discover.  I like collecting market data and then observing and backtesting for historical relationships.  I know that the past is far from a perfect predictor of the present, but I also know that if several different historical studies are pointing in the same direction, there's a worthwhile hypothesis to be entertained.

For example, when the market recently rocketed higher after considerable weakness, we got to a point where just about everything was rebounding.  I track the number of stocks in the NYSE universe that give buy and sell signals on a variety of technical indicators.  (See the Market Charts site for historical data).  Very few stocks were displaying sell signals following the bounce, indicating the breadth of the move higher.  When we look historically, the market may pause in the near term, but tends to go significantly higher in the weeks ahead.

Interestingly, it's the lack of weakness that predicts strength.  When we collect historical data and ask the right questions, new patterns show up to guide our thinking and our trading.

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4/23/2026 - Some of my best work with traders occurs when I sit in on team meetings and observe how productive those meetings are.  What is a productive team meeting?  It's one where team members question each other and gather new information.  It's also one where team members challenge each other's views, add to those views, and offer related or different views.  The best team meetings are highly active and interactive.  

The less productive meetings are rote.  Each person talks in turn, there is little dynamic interaction, and everyone goes away feeling like they've gotten an update, but not necessarily an insight.

Of course, traders trading on their own have no such teams.  There is no one to challenge them, no one to stimulate them, and no one to hold them accountable for their plans.  Having just one trading buddy can greatly broaden what you do and how you do it.  The best trading psychology is a dynamic one, where we're stimulated, inspired, and challenged by those we respect.  A great deal of the frustration traders experience (see the upcoming free webinar I'll be doing with Agnieszka Wood) is a function of their isolation and their inability to ask the right questions and get the right answers.

Teamwork makes the dream work.

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4/22/2026 - This set of questions was inspired by an interaction with a trader a while back.  Suppose you went to your physician and found out that you have an aggressive tumor and that the cancer was beginning to spread.  Removal of the tumor and radiation treatment of the area where the cancer had spread would maximize your health going forward.  Realistically, however, you can only expect to live another several years.

What do you want to do in those several years?  What haven't you done during your life that you'd want to tackle in the time remaining?  What role would trading play in your life over those next few years...or would it play a role at all?  What would you want to do in terms of family activities and relationships?

A scenario such as the one above forces us to prioritize what we do and who we do it with.  It especially prods us to identify the role of trading in our lives and how important it truly is to us.  Time is finite for all of us.  What is important is to live that time without regrets.

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4/21/2026 - Take a look at your daily, weekly, and monthly returns for the past year or two.  Take a look at index returns.  Have you been making money?  Have you outperformed the index?

Calculate the number of winning and losing trades over that period.  Have you been successful in finding opportunity?  Have you been consistent in finding opportunity?  Have there been market periods/environments in which you've found particular opportunity and in which you've failed to find opportunity?

Calculate the average size of your winning and losing trades.  Have you been successful in letting winners run?  Have you been successful in limiting the losses of losers?  What has been your Sharpe ratio?

Calculate the running three-month correlations between your returns and overall index returns.  Are you making money in unique ways, relatively uncorrelated with what the overall market is doing?  

These are but a few of the ways a professional trading firm would evaluate you if they were to hire you or allocate you capital.  Do you evaluate yourself with this kind of rigor?  Would you invest in the trading of someone else who had your track record and your review process?  

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4/20/2026 - Macro traders at hedge funds will look at news items, economic data, and central bank activities to identify what might become a trend in various markets.  Day traders at prop firms will look at charts on different time frames, observe patterns of volume, and figure out what is setting up as a profitable trade.  Good traders dig for information, and they assemble their observations into views that they can trade.

Review processes provide opportunities to ask different questions:  What trades worked, why did they work, and what did I do to take advantage of the opportunity?  What trades didn't work, what went wrong, and what can I learn from that?

The question I've found most helpful to add to the above is:  What kind of market are we in?  Are all stocks moving in one direction, or are sectors doing very different things?  Have we moved from rotational activity to broadly trending activity?  Are we seeing a thrust in breadth and how has that played out historically?  Are correlations among the various sectors breaking down?

Good questions address how to trade the market.  Great questions ask what kind of market we're in and how we're meant to adapt our trading to the evolving market regime.

Speed of adaptation is central to trading success.

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4/19/2026 - I can almost always recognize a promising trader or investment team when they ask unique questions and search for answers in new and different places.  Creativity begins with originality of thought.  We put information together in new ways; we seek out new information.  We don't just look to improve what we're doing.  Rather, we look to do new things.  

The best teams and traders are like the most successful businesses.  They innovate.

Innovation starts by examining new data and old data in new ways.  That's how we get to new and better questions.

The other day, I thought about analyzing stock market data in a new fashion.  Instead of looking for patterns of strength, weakness, volatility, etc., I wondered about the times of day in which the broad market trades most predictably.  In other words, imagine that different time periods are different markets.  Then consider backtesting market patterns/setups for each time period.  When do our trade ideas work best and worst?  How could that inform how we think about (and size) our trades?  Are there market patterns that play out at different times and over different amounts of time?

And what if the patterns play out over different volume regimes, not just time?  

As artificial intelligence capabilities become more a part of the trading universe for individual traders, success will become a function of asking more and better questions and quickly implementing solutions.

How Mindset Helps Us Win

 

4/17/2026 - A big mistake is to think of mindset purely in emotional terms.  Imagine two intersecting dimensions drawn as X and Y axes.  Positive/negative mindset might be the Y axis, describing our emotional mind frame.  The X axis might be focused/distracted, capturing our cognitive state.  We can be distracted because we're fatigued or disorganized in our process, not necessarily because of emotional factors.  Focus does not have to imply freedom from emotion.  That sniper who is laser focused on a target is also in a super aggressive state.

Of course, the worst quadrant for trading is to be negative in our emotionality and distracted.  The two feed one another.  When we are positive in our emotional state and opportunity focused, that is when we are most likely to be open to what markets are doing and receptive to patterns that emerge.  One reason I like to start my market day with research is that it is inherently opportunity-focused.  

A great exercise for breaks in the trading day:  Draw the X and Y axes and then identify where you're at in your focus and your emotional state.  Stepping back from trading and getting back into sniper mode through biofeedback, meditation, visualization, and searching/researching can turn your trading day around and build the right habits for your trading psychology.

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4/16/2026 - What upsets the mindsets of many traders is frustration.  They don't want to lose money and they wait patiently for a good entry setup and the market roars ahead without them.  They are careful to not lose too much money and end up stopping out at the worst time.  They want to make money, markets are slow and choppy.  All of these are frustration scenarios that traders are familiar with.

Another kind of frustration is frustration with ourselves.  We don't do our homework thoroughly and miss an opportunity.  We break one of our own rules and lose too much money.  We take a vacation at the worst possible time to be away from screens.  

All of us have been there and done that.  It's not that successful traders don't get frustrated; it's that they channel their frustration productively.  Very often, we're frustrated because we know better and sense that we could be making better decisions.  The frustration can become a prod to tighten up our processes and do the right things.

In the upcoming "Ask Me Anything" webinar with Agnieszka Wood (Wednesday, April 29th at 7 PM ET), we'll be fielding questions from traders and helping them use their frustrations for self-improvement rather than self-blame.  Our frustrations are there for a reason and have something to teach us.  I look forward to learning together!

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4/15/2026 - Here's a mindset factor that I've found consistently differentiates the best from the rest.  The majority of traders reach out for coaching help when they're struggling.  By that time, they've tried everything they can think of.  It hasn't worked, and they're frustrated.  A big part of the coaching is getting past that frustration so that they can approach opportunity and risk in a different way.

The best traders and teams, however, reach out when they're doing well.  They are energized by their success, and they're looking to grow their businesses.  Their goal is to get to that next level of success, and to do that, they have to understand what has worked for them to this point and how they can build upon it.

In the majority of cases, the request for coaching is driven by need.  Among the best traders, however, the coaching is all about defining, expanding, and achieving a vision.  It's great to identify and correct weaknesses--all great performers do that--but simply eliminating the negative will not achieve the positive.  As I mentioned in my recent talk at the SMB summit, you are meant to do something great.  The right coach never loses sight of who and what you're meant to be.

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4/14/2026 - Quite a while ago I wrote a blog post called The Devon Principle.  If you weren't around 20 years ago when I wrote it, it's worth a read.  The basic idea is that we are always absorbing life experience.  What we do and who we do it with become parts of us.  Many times, we find ourselves in the wrong mindsets--with diminished energy and productivity--because we're doing things in life that don't play to our strengths.  The wrong jobs/careers, the wrong relationships:  these drain us.  When we are doing what we love doing and do best, our efforts *bring* us energy.  

What about the *process* of trading most excites you, plays to the best within you, and represents your unique talents?  If what excites you is merely P/L, you'll always be vulnerable during inevitable periods of drawdown.  The key to success is finding a way to engage markets that also engages what we love doing.  

Life is way too short to be lived without passion.

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4/13/2026 - How does mindset help us win in life?  In the middle of the night it came to me:  In an ideal mindset, we approach life as venture capitalists, looking to invest ourselves in people and activities that are amazing, unique, and promising.  Put yourself in as many interesting situations and opportunities as possible.  The adventure is seeing what stands out as worthy of investing your time and energy.  That mindset sees the world as a place of limitless creativity where there are always people who inspire.

Too often, in markets and relationships, people focus on how they can avoid getting hurt and so they never truly invest themselves in the opportunities that are all around them.  When Margie and I went on a cruise to Alaska, we were amazed at the icebergs and the wildlife on those.  Our ship was too large, however, to get very close.  So we rented out a small boat and an experienced guide and went right up to the birds and seals and caught a sweet view of a whale.  It was a bumpy ride, and it led to a lifetime of memories.

Dream often.

Dream big.

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4/12/2026 - If I had to identify one mindset quality setting successful traders apart from the others, it would be a *hungry* mindset.  The really good traders actively look for where they might be wrong.  They love information and making sense of information.  They dig and dig:  in news reports, in conversations with other traders, in their readings.  Because they're integrating more information, their views tend to be more nuanced.  For instance, they'll dissect an inflation report, drilling down to various parts of the economy, to identify relative winners and losers.  They don't just say, "Stocks are going down because inflation is rising".

The desire to know--that intellectual curiosity--came through as a primary predictor of success in the research I conducted at several hedge funds.  Very often, the confident mindset and the defeated mindset are focused on one or two things, such as recent wins and losses.  When a trader hungers for the big picture, they're more likely to come up with multiple ideas and big ideas.  The best traders demonstrate that intellectual hunger in other parts of their lives and at previous points in their life histories.  It's a talent, not just a skill.

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4/10/2026 - It's been fascinating to see who has done well--in terms of trading psychology and in terms of P/L--during this recent period of volatility, correction, and rebound in the stock market.  My most striking observation is that the most successful traders during this period are among the most successful traders in general.  They have succeeded by focusing on opportunity during periods of threat and focusing on threat during periods when they were making money.  The traders who have struggled have been rather uniformly optimistic or pessimistic.  It's the flexibility of perspective that has distinguished the recent winners.

For the recently successful traders, it's as if they are looking for what is stretched and where they might take profits or hedge when things go their way.  When things are going against them, they're looking for areas where good trades now are becoming great trades.  They are sized in such a way that they are never really big or small in an idea...they always leave room for getting bigger or smaller.  Instead of trying to predict how things will go in world events, they're creating multiple scenarios and preparing themselves to pounce once one of those is playing out.  

A flexible mindset creates flexibility in trading.

What Inflation Does To Stock Market Investments

 

4/9/2026 - Thanks to Mike Bellafiore and SMB Capital for this video of my talk at the recent SMB Summit.  The talk builds on the topic of positive trading psychology, emphasizing that all success in trading comes from talents *that we already possess*.  The role of training is to instill the learned skills that leverage those talents.  The role of coaching is to guide and help implement this training.  You can see below, in yesterday's posting, that the collection of data and running of analyses is one of my talents.  Talents can always be recognized because their exercise produces meaning and fulfillment.  Digging deeper and creating understanding makes all the hours of data collection and analysis worthwhile for me.  

But talent is not skill.  Just because one can analyze market data doesn't mean that they can translate that understanding into profitable trades.  Mentoring is all about modeling the process of turning insight into action.  As the video indicates, what I saw in SMB was a program that provided that modeling day after day for developing traders.

Because we have a ceasefire doesn't mean that oil prices will return to their recent lows, stimulating economies.  The damage that has been done to production facilities and the ongoing conflict over control of the Strait helps ensure that energy prices will remain high, contributing to inflation and weighing on economic growth.  I will be using my analyses to identify which stock market sectors are most and least vulnerable going forward and structuring trades on that basis.  When market action lines up with analyzed market edge, there we will find unique trading opportunity.

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4/8/2026 - With the overnight ceasefire, we see estimates of inflation (especially as reflected in oil prices) coming down and stocks rallying significantly.  I went back to 2006 (over 4900 market days) and looked at all occasions when we closed with over 80% of all stocks above their 3- and 5-day moving averages, but less than 50% of stocks above their 50-day averages.  That represented only 157 of the days.  Near-term returns in SPY (next five days) underperformed and were barely positive, but over 20 days, the upthrust days significantly outperformed (+1.69% vs +.78% for the rest of the sample; 105 days up, 52 down). That outperformance continued to out 50 days.  

This is a great example of how many of the directional edges in the stock market play out over time frames longer than most traders are looking.  In the current market, it may well be that the oil market will be a sensitive gauge of whether peace or conflict will prevail in the Middle East.  What market history is telling us is that near-term pullbacks are often valuable entries for medium-term upside momentum following bullish breadth thrusts.

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4/7/2026 - I'm seeing a number of articles in the media outlining the potential impacts of crude oil going above $150, emphasizing the impact of higher energy prices on consumer confidence and consumer spending.  A number of the traders I work with are therefore carefully monitoring crude oil and natural gas prices and assessing how these might affect countries that are importers vs. those that produce and export energy.  This is a great example of how world events lead to investment and trading themes that find diverse expression.  Inflation would not affect all markets and all countries equally, setting up potential opportunities for market participants, even as there are broader economic threats.

Indeed, my AI summary of this topic indicated quite a threat to oil exceeding $150/barrel (see below).  Conversely, indications of renewed production would be especially helpful to estimates of future growth.  All eyes will be on oil and related markets near term.

"Crude oil at $150 per barrel would likely trigger a severe global recession, a substantial rise in inflation, and intense volatility in financial markets. This price surge, equivalent to a major tax on consumers, would stifle demand, cause gasoline prices to potentially exceed $6–$7 per gallon in some regions, and force sharp contraction in manufacturing."

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4/5/2026 - Here is a chart of historical stock market data that, unfortunately, may be of increasing relevance.  Please note the following:

*  From 1929 to 1949, the Standard and Poor's 500 Index, measured in inflation-adjusted terms, went from 545 to 193, losing over half its value in a 20-year period.  

*  From 1968 to 1982, the inflation-adjusted index went from 957 to 359, again losing over half its value.

*  From 2000 to 2009, the inflation-adjusted index went from 2860 to 1226, once again losing over half its value.

The good news is that, over the broad span of history, stock prices--even in inflation-adjusted terms--have been in a bull mode, rising over 15-fold since 1982.  The bad news is that there have been significant declines along the way that hurt investors near retirement.

Since 2009, the Index has risen over five-fold in inflation-adjusted terms.  Now we see rising oil prices and signs of rising inflation and the beginning of slower growth.  We see long-term rising debt in the economy.  

History teaches us that we may be entering a period in which the return of our assets becomes as important as the return on our assets.