Dealing Effectively with Trading Mistakes

Mind Over Markets

In today’s episode, we are going to be discussing how traders can deal effectively with execution mistakes! Mistakes happen to everyone and they can be extremely frustrating especially because, in this industry, they can and often do, end up costing us money. What defines you as a trader is not whether you make mistakes or not, but how you deal with these mistakes when they end up occurring! So what are some of the most common trading mistakes traders make?

• Fat fingering trades (putting on more size than you want or fumbling your order executions)
• Hotkey execution error (Having trading hotkeys enabled that are the same as other hotkeys for other applications)
• Taking trades in live account while thinking you are in SIM (or vice versa)

If you've been trading for any amount of time, you will likely have experienced one or two of these mistakes in your career. Reflect back on that error and ask yourself what lessons you learned to avoid making the same mistake again? For me (Mark), the mistake that comes to mind was having trading shortcut keys enabled on my platform that were the same as the ones I used for zooming in and out of my charts. One morning when I was completing my pre-market analysis, I was trying to zoom out of a chart and while the chart was not moving, I noticed that my DOM was filling trades at market. Just before the opening bell, I was short 5 NQ contracts and managed to close them out for a manageable loss...but the damage had been done and an important lesson was learned! Since then I have personally avoided using hotkeys on my platforms and have disabled this feature so as to avoid this mistake in the future. What is important for new traders to understand is that trying to be perfect and avoiding mistakes will not get you anywhere in this business; you need to embrace that mistakes are part of the learning process. On that note, some of the most common things that lead to these sloppy execution errors include:

• Being mentally fatigued or tired when trading
• Lacking concentration due to distractions
• Not being prepared for the session (Fail to plan, plan to fail)
• Lack of execution skills on the trading platform

Now that you are familiar with the common mistakes traders make and the catalysts that lead to these mistakes, let's take a moment to touch on how most traders actually react when they make a mistake! Most traders take losses personally and point the finger outwards, effectively adopting the victim mentality - "The market is rigged" or " My broker is hunting my stops" are common statements- and then they proceed to try to make the money back by trading emotionally.... digging themselves into an even deeper hole. Professional traders, on the other hand, adopt a different approach to dealing with mistakes which can be broken down into two main categories:

1. Preventative strategies
2. Recovery strategies

Preventative strategies are rules or guides the trader creates in order to avoid making these common mistakes. Some of the strategies traders use include:

• Building execution skills by practicing and mastering the execution tools in your trading platform through the simulated trading environment
• Maintain energy levels throughout the session (starts before the trading day and include proper sleep/hydration & nutrition)
• Monitor mental capital levels before trading and stop trading once mental capital drops below the required criteria
• Set up a trading environment that minimizes the potential for distractions during the trading day

Even if you have preventative measures in place, mistakes can and will still happen because, at the end of the day, we are human. In the event that a mistake is made, you can use the following strategies to effectively recover and deal with it:

• Accept what has happened and take full accountability for it - only when you live at cause do you have the POWER to enact CHANGE
• Do some breathing exercises { 4-7-8 breathing} if you feel stressed or angry and also repeat to yourself “I am in control” - You can do this exercise either sitting or lying down.
• The next step is to extract the learning lesson from the mistake and then to "release" the mistake and let it go (some people prefer to physically gesture themselves “throwing” it away).
• The final step is to rehearse successful execution by imagining what you would do should the same situation happen in the future and affirm that this is WHAT you will do!

Resources

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