by Terry Macartney
Ever made a mistake or had an unfortunate incident happen in your trading career?
Yes, indeed, strange but true, these DO happen. All sorts of mistakes. Some are more like accidents, as in when you spill a cup of coffee all over the keyboard and it stops working just as you are about to close that trade. I’ve had that happen.
Others are sneaky little things that jump up and ambush you, like “accidentally” putting on the wrong position size. I had a disastrous event like that once when I put a very small trade on as an experiment. That was definitely a mistake for a variety of reasons.
Unfortunately, my intended position of .05 lots printed as 5 lots, 100 times what I had intended. To this day, I do not know if I typed it incorrectly or whether the keyboard did not register the decimal point and the zero. Said keyboard stopped working some 5 minutes later with a flat battery, so it was possibly an accident or at least bad luck.
But the bottom line is I did not notice or check the position size before hitting “Buy”. That was certainly a mistake.
The result? A trade seriously in the red before being noticed, and what had been a nicely profitable week was suddenly in major drawdown.
And the Difference is?
So we can have “accidents”, something occurring by chance, unexpectedly or unintentionally, and we can have “mistakes”, an error in action or judgement. Sometimes, one may trigger the other, a mistake opening the doors to an accident or an accident encouraging a mistake. Either way, the negative result is usually even worse.
The Real Mistakes
The main type of mistake that occurs in trading is one generated by unhelpful reactive emotional responses, belief biases, and plain old bad habits. These are actions that, afterwards, we know we have blown, and all we can say is, “Well that sure was a mistake!” and even vow never to repeat that silly action again.
What becomes apparent though, is that our trading mistakes or errors in judgement and action, are most often a deliberate breaking of our trading rules.
There are many examples of this. That time that you saw a good trading opportunity much later than the optimal entry, but still entered anyway, only to find most of the move was over and you were caught in a very inferior, or negative, trade. You broke your entry rules.
“Well that sure was a mistake, I’ll never do that again!”, and it was the fact that you probably simply succumbed to an emotional fear-of-missing-out response that created the whole mistake.
What about when you just knew that after that Central Bank announcement, the price would go up? So you entered pre-announcement, the data is released, and the price immediately goes the other way. “Wow, that sure was a mistake,” you say, and indeed it was, and your belief in what you feel should have happened, rather than working with what did happen, created the whole mistake.
Then there are plain and simple bad habits. Like moving your stop, despite knowing this is not the correct thing to do according to your trade plan. Or not entering a trade when all your entry criteria are lined up, but perhaps a fear of getting it wrong overrides your established entry rules. And as you watch the trade take off in the right direction, you berate yourself for your mistake, for not acting and following your rules. Once again, the situation was created by a largely unconscious choice, a habitual way of responding to circumstances at the time.
We Can do Something About This!
These kind of mistakes are the ones we can do most to rectify. The first step is noticing that this is what you are doing. If you have created a good, solid trading plan, position sizing protocols, and risk and trade management systems, and yet you still keep breaking your rules, you are most likely running an addictive behavioural pattern.
Now “addictive” is a pretty strong word, very emotion laden, but in this context it implies you are habitually prone to a certain action. This is because you are getting something from that action. For example, the habitual (or addictive) act of getting out of trades too soon is very likely tied to a stress release response. You are “addicted”, at an unconscious level, to feeling less stressed and better off by exiting a trade for some profit, even though your rules may very clearly have a different exit strategy.
By initially noting these tendencies in your trading responses, you gain clarity on what you actually want. Do you want the “feel good” factor, or do you want to maximise and develop your trading expertise? You will also see that each time you are in a situation where you have a tendency to act habitually (and against your rules), there is a very clear choice point. This is often unconscious, but becoming aware of that choice point allows a more deliberate and conscious decision to be made, one that supports your long term trading ambitions, rather than a short term “feel good” benefit.
Over to You
There are a wealth of techniques and strategies available through what is called Change Psychology, all aimed at shifting from unhelpful habitual behavioural responses to more useful and healthy ones. These can be invaluable in creating more effective and conscious actions in your trading, leading to less mistakes, and less errors in judgement and action.
If this is an area you are interested in or feel you may benefit from, you may be interested in a Free Skype Call to discuss some options that could be useful to you. I am offering these consultations until Christmas through my Accountability Coaching Program website at http://fxcellence.com/ You can book a time that suits you on the Bookings and Calendar page.
About the Author
Terry Macartney is an FX and indices trader based in northern NSW, Australia. He is an Accountability Coach for traders and has established FXCellence as a coaching platform for working with traders and small businesses. Contact can be made here: http://fxcellence.com/