Traders’ Top 10 Mistakes

I like Jim Wyckoff’s New Year’s Resolutions; he notes if he follows  these they can help him become a more profitable trader. Of course, "easier said than done." We’ve all violated these rules at one time or another.

He identifies 10 of the more prevalent mistakes traders make:

1. Failure to have a trading plan in place before a trade is executed. Without a specific plan, a trader does not know, among other things, when or where he will exit the trade or how much money may be made or lost.

2. Inadequate trading assets or improper money management. It does not take a fortune to trade the stock or futures markets successfully. Part of trading success boils down to proper money management and not gunning for those high-risk "home-run" type trades that involve too much capital at one time.

3. Expectations that are too high, too soon. Beginning traders who expect to quit their "day jobs" and make a good living trading in their first few years are usually disappointed. It takes hard work and perseverance to achieve success in any field of endeavor — and trading is no different.

4. Failure to use protective stops. Using protective buy or sell stops upon entering a trade provide a trader with a good idea of how much money he or she is risking on that particular trade, should it turn out to be a loser.

5. Lack of "patience" and "discipline." Don’t trade just for the sake of trading or just because you haven’t traded for a while. Let those very good trading "setups" come to you, and then act upon them in a prudent way

6. Trading against the trend — or trying to pick tops and bottoms in markets. It’s human nature to want to buy low and sell high (or sell high and buy low for short-side traders). Top-pickers and bottom-pickers are usually trading against the trend, which is a major mistake.

7. Letting losing positions ride too long. Most successful traders will not sit on a losing position for very long. Traders who sit on a losing trade "hoping" the market will soon turn in their favor are usually doomed.

8. "Overtrading." If losses are piling up, it’s time to cut back on trading, even though the temptation is to make more trades to recover the recently lost assets. It takes keen focus and concentration to be a successful trader.

9. Failure to accept complete responsibility for your actions. When you have a losing trade or are in a losing streak, don’t blame your broker or someone else. You are responsible for your own success or failure in trading. You make the decisions.

10. Not getting a bigger-picture perspective on a market. One can look at a daily bar chart and get a shorter-term perspective on a market or stock trend. But a look at the longer-term weekly or monthly chart for that same market can reveal a completely different picture. It is prudent to examine longer-term charts for that bigger-picture perspective when contemplating a trade.

Good stuff Jim — welcome suggestions any time of the year . . .


New Year’s Resolution: Avoid Traders’ Top 10 Mistakes
By Jim Wyckoff contributor
1/2/2007 10:27 AM EST

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  1. V L commented on Feb 25

    Ten Signs of a Market Top (by Doug Kass, the self-proclaimed “anti-Cramer”)

    10. I have gained 19 pounds since September, and on Friday, I sold my personal portfolio of blue chips and bought potato chips. (I was at a Democratic fund-raiser in New York City last week, and I saw Al Gore, but I didn’t recognize him. I asked my friend, “Who is that skinny guy?”)

    9. My best friend, Dean the Dream, will no longer open the emails that contain my daily opening missives on The Edge; they get him too depressed. (The only person who is responding to my instant messages these days is Fred Hickey, the High-Tech Strategist.)

    8. To help with my nervous sweating during market hours, I now wrap myself in Bounty paper towels.

    7. I have been called almost daily by Bloomberg TV and CNBC to represent the bear case. The segment bookers have explained to me that there are no bears left to interview.

    6. After lecturing in his graduate school business class at Yale University in January, even permabear Dr. Robert Shiller told me I am too bearish on housing.

    5. When I request to borrow stocks (to short) from my prime broker, Bank of America (BAC – Cramer’s Take – Stockpickr – Rating), I have begun to hope the borrow will be denied.

    4. I get irate when I listen to the bullish (and seemingly glib) case for equities made daily in the media. (Worse yet, the bulls are starting to make sense to me.)

    3. I have finally run out of cheap tequila in my bar, which I drink most evenings on the cold linoleum floor, so in order to reduce my level of anxiety, I have doubled my daily Zzoloft intake.

    2. My 14-year-old niece, Natalie, asked me at my birthday party last Sunday: “Uncle Dougie, why don’t you ever buy stocks; it’s dumb not to, isn’t it?”

    1. Last week I ordered three “Mad Money” Jim Cramer talking bobble heads from NBC’s Universal Store online, but they couldn’t be sent out, as they have been backordered for three months.

  2. Winston Munn commented on Feb 25

    I am batting .300 on this list, so I guess I can be inducted into the chump hall of fame five years after I go broke.

  3. Mehdi Alimadadi commented on Feb 25

    Good job!
    All of these items tell us : first think then trade or not trade!

  4. Bob A commented on Feb 25

    11. Watching Mad Money and/or listening to anything the host of that show says.

  5. Anil Passi commented on Feb 25

    12. Reading too many financial blogs, and thinking those bloggers are god, and letting your own judgement being overruled by their market predictions….doh [Where is the recession in Q1…lol]

    Anil Passi

  6. CDizzle commented on Feb 26

    I have suffered from 17 of these 10 bugaboos. Past tense is key here. I’ve only committed 2 of those mortal sins in the month of February. Great list.

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