When I asked my Facebook trading group what was the cause of their biggest trading losses, no one had any trouble remembering those painful and valuable lessons. These top 30 insightful answers will benefit new traders and provide a nice reminder for those with more experience.
“What was the cause of the biggest draw downs in your trading accounts?”
- Having no exit strategy
- Being certain of your opinion on the direction of an asset
- Arrogance that you know how the trade will turn out
- Thinking that you are invincible
- Over-trading
- Believing that the market must go down based on a guru’s prediction
- Letting a guru convince you that you shouldn’t place a hard stop, but to wait for a reversal
- Incorrect position sizing
- Greed that causes you to trade too big and risk too much
- Margin
- No Hedges
- Not understanding that a Bull Market has ended
- Poor risk management
- Not knowing that earnings were about to come out on your stock
- Your ego takes over your trade
- You decide not to take your initial stop loss
- Believing a losing trade just has to reverse
- Buying a stock because it is a ‘value’ that drops another 50% from your entry
- Trading without a positive expectancy model
- Trading options without understanding how to place stops or use proper position sizing
- Thinking it “Has To Come Back”
- Buying and hoping
- Trading with no plan
- Not having trading rules for your system
- Not following your trading rules
- Averaging down
- Trading without an edge
- Keying error on the trade
- Not placing a stop
- Trying to out-guess the market
- Trading illiquid options
- Fighting the trend in your time frame
- Not fighting the natural impulses of greed and fear
- Using emotions for trading signals
- Using greed for position sizing
Thanks to all the members of the trading group that shared their wisdom!
These 35 things can cost a trader a lot of money. If you are able to avoid these errors, you will find yourself on the right side of your trades, with the money of less educated traders filling your account. Trade well.