What are the biggest mistakes a trader should avoid in stock trading?

Same methodology as far as I'm concerned. The difference is that DCA is for buy-and-holders, those who have faith their investment will eventually rise ever higher. But for traders, DCA makes no sense. We buy when the trend is up and sell/short-sell when the trend is down.

Right???That's what I thought...this financial advisor boss I had bragged about his dollar cost averaging on his positions.... Also this MBA friend I have hyping up DCA......In my head I thought PTJ said losers average losers....but never knew they were the same ideology.

So only for traders....losers average losers? Or are investors also under the same rule....I know you said for buy and holders its different....but...
 
I believe that most traders have issues with thinking too much about a trade, and becoming affected by the outcome of any one trade.

I agree with this -- it made me think of a movie quote: "Yeah, well, I'm a Marine. We don't plan. We improvise." --Keenan Ivory Wayans, Most Wanted. 1997
Most_Wanted_1997_movie.jpg

Sometimes the market doesn't go the way you expected it to, that's just simply the nature of the market beast. -- and you have to kind of think quickly on your feet; reevaluate the scenario unfazed with clarity. :wtf:
 
With all due respect to your vast knowledge and experience, I don't agree with this.

I believe that most traders have issues with thinking too much about a trade, and becoming affected by the outcome of any one trade. If we set aside the need for a plan, which is of course the case for both day trading or long term/swing trading, then what we have left is execution. Simply, longer term trading doesn't allow for building this important skill. If you enter only 2 positions a week, and they are both losers, you will dwell on this, and it may very well affect your ability to put on any more trades the following week. Also, the losses might be bigger for longer term trades since your stops and targets will be bigger as well.

Lastly, if you're having too much time to think about the trade, you might start looking far too deep as for why this trade didn't work, and although there may be ways to increase a win rate by looking for other clues as for why certain trades shouldn't be taken, I'd say most traders have less than a 70% win rate, and hence being focused on squeezing out a slightly higher win rate might not actually be the best way to make more money. It might provide psychological comfort to have a high win rate, but this might not lead to more money, especially if it means less wins, along with less losses.

Correct me if I'm wrong Handle, but I do believe that you said you once has a string of 22 losses in a row, which you said was within the limits of your trading plan. If a retail guy had this happen to swing trades that are in the works for a few days each, 22 losses in a row might be 3 months of not having a single win, which would be hugely emotionally destructive.

So although day trading might not be easy, and tight stops might often kick you out of trades too soon, what it has going for it is instilling the proper trader's mindset. You put on a trade, you win some, you lose some, you move on to the next trade. Hopefully the losses are small, and hopefully the wins are a bit bigger, and hopefully after a series of trades you've squeezed out a tiny profit, perhaps break-even, or maybe a small loss, but if you're at least letting your trades hit stop or target on each one, you shouldn't lose too much. If you're always losing, then you've of course got a great system that you just fade. But it seems to me that most traders will start messing with trades, taking bigger stops, not taking full profits, etc., and this type of activity is I imagine even more pronounced the more time you have to think about a trade. So in many ways, I think day trading allows a trader to get used to working in the correct frame of mind.

We all have opinions based on our own life's experiences, I co-owned a brokerage back in the 90s which allowed me to see what most never get to see, immerse failure. At the time of someone opening an account with $20k for Futures account and they day traded, over 90% of the time they were under $10k in two months and either closed account or had to put more funds in.

So many people have to work either days/nights to pay the bills, they don't have the time to stare at screen all day long for months/years, they open forex accounts and underfunded and under educated, and all think they are special at it, they have some system that not well tested, but they just know it will work, they have memorized nothing and small losses become large losses as they doing back testing during the trade.

Ok, entering 2 trades a week, if so lucky to have 2 viable trades to even have as something months go by before I have something, but if done in my case "right way", you have back tested 10-25 years of data, you have every answer for every question and you memorizing chart patterns. It just too hard IMO to memorize and learn enough inside several months to day trade well and cause you don't have the education of taking time long term, you don't have well rounded Trading Plan.

And yes had 22 losing trades in a row, but the back testing prepared me for this, it did not prepare for losing my cheery disposition, and in day trading, most never get past wanting to hurt and maim anyone any so many lousy days of day trading in learning process when you not prepared well enough. My long term commodities system is the lowest winning percentage system I have ever traded or seen if only based on futures contracts, but I look at overall position with the hedging and that changes the game. And since most of what I have accumulated through the years been through long term, why I come to the conclusion I have.

You trade long enough, like any profession, you sometimes don't even notice you doing it till alarm goes off and time to stop. There frustration at times, but after I stop, don't remember much whether market was up or down on day, unless I had huge loss day-I remember those, LOL
 
Right???That's what I thought...this financial advisor boss I had bragged about his dollar cost averaging on his positions.... Also this MBA friend I have hyping up DCA......In my head I thought PTJ said losers average losers....but never knew they were the same ideology.

So only for traders....losers average losers? Or are investors also under the same rule....I know you said for buy and holders its different....but...

Investors and traders follow different rules. Among other things, investors base decisions on FA. Traders rarely do that.

I don't often agree with Jim Cramer but one thing he said that I do agree with is:

Never let a trade turn into an investment.

You enter a trade because you're confident of the direction it should go. If it goes against you, you get out. Period. If you don't, you're not really a trader, you're somebody who's trying to switch roles from Trader to Investor in midstream. And if the instrument isn't one you would have chosen for a long-term investment at the outset ... oh boy.
 
What are the biggest mistakes a trader should avoid in stock trading?

1. Never take a laxative just before the market opens.

2. Never take Viagra just before the market opens.

3. Never take Viagra and a laxative together. You won't
know if you're coming or going.
 
I remember when I started trading intraday, I lost 30% of my capital just because I was trying to average the price and thought stop loss was a useless term.



Failing to use a properly back-tested and validated system.

Proper back-testing will reveal that mistakes will be made before you actually make them. It would've revealed many/all? of the mistakes posted about in this thread. It would have revealed that you could have lost 30% of your capital before you lost it.

It won't give you a good system. It tells you whether you have a good system.

With proper backtesting, you simply won't trade with real money at all until you've evidenced, through proper back-testing, that you've discovered a system that actually seems to work.
 
Not doing your homework is one of the biggest mistakes.

It's mostly about (long-term) statistics and probabilities, ranking etc.; ie. research in general, not only the usual TA and FA stuff.
It also depends on the timeframe of the trader, ie. a HFT bot, daytrader, swingtrader, long-term investor... all have different requirements... common to all is doing a good research of the past and of the current market conditions/climate to be able to make a good forecast of the near-future...

Sorry for my ignorance. What is a HFT bot?
 
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