Have you ever thought that (almost) all the mistakes you make could be partly avoided if you knew beforehand about their existence, how they occur, and why?

Knowing in advance allows you to find methods or expedients for not committing them.

This is because knowledge is the basis of everything, even in trading. Studying and understanding what mistakes you might make provides you with the awareness you need to try to avoid them.

In life, this process is complicated because not making mistakes isn’t humanly possible.

In trading, the same applies: being perfect and flawless is impossible, but we are fortunate to be able to learn from the mistakes other traders have made before us.

By watching this video, you’ll find out more about:
-What are the top 5 errors, and how they occur
-Some tips on how to avoid or prevent them.

Are you ready to beat mistakes on time and learn how to prevent them? Then, this video is exactly what you need!

Enjoy the video!

Transcription

Introduction

Five most common mistakes among traders.

Hi, Andrea Unger here.

Well, I'm often asked what the most common mistakes, errors are among traders I know and myself.

Well, I can pick a list of what I've seen most often.

First Mistake: Trading Without Proper Knowledge

Number one, I would say: to trade, start trading, with no proper knowledge about what you are doing, sort of driving in the dark with no lights.

I mean, it's not only not knowing about trading, of course. Anybody going into the trading world without knowing what he or she is doing is crazy.

But it's also neglecting the proper knowledge, not building a proper plan for the trading operations, or not even knowing exactly the instrument you are trading.

The stock market is pretty fine.

But imagine you are trading a derivative, a future, and you don't know how much it means a move from A to B, having one or two or three contracts.

You don't know what it means in terms of dollars.

So this is obviously a pretty dangerous mistake.

So not knowing what you are doing is the most common mistake and one of the most dangerous.

So it's not having a proper knowledge, education about the markets.

Second Mistake: Not Accepting Losses

The second, and certainly you have heard about this, is not to accept losses.

Losing trades are present in trading.

They are a cost of the activity.

They will always be there.

So you cannot get rid of them.

And trying to get rid of them is often a mistake because you are looking for something which can be hardly built.

Of course, you could, for example, build a system where you use very, very wide stops.

So these stops are hardly reached by your position.

But imagine if they are so far away, if prices approach them even far away, but you are still experiencing a very hard open position loss, which is not yet capitalized because you have not closed the position. But it's still a loss. It's there, you cannot do anything. So obviously this is a great mistake.

But even worse is when people don't accept the losses and maybe they plan them, they do everything right, they prepare a due plan about their trading and then, when markets are getting close to their stop loss, they cancel it because they don't want it to be triggered.

And then they start hoping, they start to hope that the position will get reverted, get in their direction again.

And a short term position becomes a medium-term position, a long-term position, investment position and things like that.

So obviously this is a bit extreme, but truth is that you have open positions you haven't closed at due time and you keep them open hoping they'll recover.

You start reading news about these companies, you start reading analysis, everything possible to give you hope.

Hope is your enemy, believe me.

Third Mistake: Opening Overly Heavy Positions

The third most common mistake is to open too heavy positions, which is: you enter too big in the market.

This is underevaluation of the risk because obviously the larger the position, the more dangerous it is in case the market goes against you.

People are often overconfident. This comes when they are too sure things will go in the direction they plan. So they exaggerate in opening a position.

And if things go wrong, then you have serious trouble and underevaluating risk in general, risk from a practical point of view and from a psychological point of view, because you might even find yourself in a losing position, which is not exaggerated compared to your account.

But you get overwhelmed by the emotions because you are not ready to accept psychologically that kind of loss.

And at that point you commit other mistakes because you lose lucidity and you start doing things wrong, obviously.

Fourth Mistake: Getting Stubborn About Recovering Losses

The fourth common mistake is to get stubborn about recovering losses on the very same instrument where they lost money.

This means either on a stock you accumulated losses, maybe you close positions, but you want to make the money back on that exact stock.

It doesn't matter if you lost ten here and you can make 300 there.

No, you keep trading that stock because you want to recover that.

You don't accept having a loser in that stock.

Or in case of systematic traders as I am, you have a trading system, one of the many you have, and that trading system starts losing.

So there is a point in time where you should shut it down because it got out of every parameter where you measure your trading system but you don't want to shut it down.

No, you don't want to shut it off because you want that trading system to recover the losses. I know it's crazy, but believe me, it happens.

It happens very very often.

And this is a very common mistake because people obviously go on losing because when you are inside something that is losing, you keep on losing.

In some very seldom cases you make the money back there.

But it's very silly because you should put your energy elsewhere, not where you've lost.

You lost on Natural Gas. You can recover on Mini S&P. Why not?

No, most of the people don't want.... Theu all want Natural Gas in the green. I know it's crazy, but it happens.

Fifth Mistake: Exaggerated Expectations

Fifth, it's the last in this list, but not the last among all the mistakes, is to have exaggerated expectations about trading performance.

Believe me, people most often think that trading can get incredible performance for their money.

People think they can double their money every month or things like that sometimes. This is absolutely crazy.

So this exaggeration in the expectation leads to frustration, mistakes, other mistakes, because you get back to the points before, maybe you open too large positions or you don't apply stops because you just want to make money.

You try to make money, you think you make a lot of money, but it's not the case. Of course, it can happen. I mean, everything can happen. Any performance is possible. I might even buy a lottery ticket and win millions. Okay, but it's a case, it's luck.

And this can happen also in trading. But it's not the norm. When I talk about the norm, I've said this more than once, a very experienced and good systematic trader can net a 30-35% a year in average. Which means he or she can obviously make the +672% I made in the Championships.
But he will also have losing years.

So it's just a matter of average performance, which is an excellent performance, by the way. But if you talk to people about 30%, they say, oh, that's it, really? But believe me, 30% is a great performance. We could discuss about this in another contribution.

And believe me, it's a great performance, but people don't like it because they want to make 100%, 200%.

My cousin, he bought Bitcoin when it was $30. Look now... Your cousin... It was great. Great luck. It's the case of the lottery ticket.

I hardly could believe that your cousin studied the market of Bitcoin and was able to guess what would have happened afterwards.

And it can happen again tomorrow somewhere else. But it's mostly impossible to predict it. So you might be there. I wish for you, you are there, but it's not in the professional trading activity.

Professional trading activity is building a plan and going step by step and be able to be there also tomorrow if today goes wrong.

So you see that to be there tomorrow if today goes wrong.

Exaggerated positions are bad, not accepting losses.

You need a plan and a good risk management.

I mean, sounds pretty obvious, but this is the key.

Conclusion

All these mistakes, these five top errors of traders in the end are due to lack of education, lack of knowledge and excessive risk. Excessive risk due to lack of knowledge.

Because if you had studied things properly, you would probably know when you are taking excessive risk. Education. Education is the key in everything in life and also in trading.

Trading is not a lottery. It's just a business you can obviously learn. You need to learn. Studying and getting the proper education about what you do.

So you can build a plan, you can go there with a proper risk and you can last for the long haul and make really then lots of money.

But slowly, slowly, year after year, year after year, because there will always be a new year if you control this year.

That's it, guys. See you next time. Ciao from Andrea Unger.

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