Common Trading Mistakes

BarroMetrics Views: Common Trading Mistakes

First off apologies for missing Thursday and Friday last week. I was down with the flu and, Ms Ana Wang who usually fills in. underwent minor surgery. As a result there was no one to write the blogs.

Now to today’s blog…..

In the past week, I had news of my  good friend ‘blowing-up’. He was a 16-year day-trading veteran of the ES Markets; but, not only did he fail to exit losing positions at day’s end, he kept adding to this loss until he ran out of margin. This news added to my already somewhat down mood – induced by the fact that two students had also blown up. The idea of this sequence of blogs is to keep some readers from repeating this mistake.

Last week I wrote a piece to help keep you in the game – “A Risk-Management Process“. In this series I’ll deal with ‘Common Trading Mistakes’; then I’ll look at some uncommon ones.

Today, I want to review ‘unrealistic expectations’.

An attendee of the Sydney free webinar wrote this:

“The trading industry is probably THE worst industry for “charlatans” and to be able to find just ONE genuine mentor/coach is like “a needle in the mountain size haystack” adventure.”

I agree with the author. But the hype is only one side of the equation. Before I go on, let me be quite clear, I am against any type of fraud;  so nothing I say here is to be taken as an apology for some of the practices that masquerade as ‘trading education’. Having said that, we traders need to bear in mind that the practices would probably not exist but for our participation.

We have all seen the beautiful ads promising untold wealth for only 15 minutes per day.  Some of the more shameless ones will have scenes of beaut cars, loads of cash, a penthouse or two and sometimes even a tropical island! At best the systems are the result of innocent curve-fitting and at worst are the result of fraudulent figures.  But as a general rule,  the promoters care little that they are lining their pockets with the hard-earned of those of us who are  either sick of our current working environment or are just plain desperate to make some money or to recover our losses.

The first of my common mistakes is our side of this promoter equation: our unrealistic expectations.

We want to believe that there is a Holy Grail – a magical system that (and I quote from a Singaporean, seminar attendee):

  • ‘will  produce $,
  • few, if any losses,
  • will involve little effort and
  • will cost next to nothing to buy’

Now there is a reason why this nonsense is believed for the trading profession and few others.

If I said I could you train you to be a first-class lawyer (surgeon, architect etc) so that you would have a million dollar income and you would need little by way of effort, time and money, few would believe me. Yet, for trading, so many believe that not only is this possible, it is theirs as of right. Then they complain they have been ripped off!

But the nature of trading provides a basis for this belief – at least until you think it through.

The nature of trading – that it is a probability game – means that for any one trade, a ‘lucky-novice’  may make money while the ‘professional’ will lose. The market may be even so kind as to extend the ‘luck’ by more than one trade. But sooner or later, the ‘lucky-novice’ will get what he deserves, and so too will the professional.

There is another aspect of the probability game I need to mention: all the experience in the world will not shield you from the dire consequences of one lapse of judgment – witness the fate of my friend.

Finally, in this area of unrealistic expectations, there is one more myth I want to dispel : the idea that if an instructor is any good at trading, he will not  charge to pass on the education he has so painstakingly acquired. At the base of this argument is a misconception about the nature of making money. The best expression of how I view money is found in Atlas Shrugged: see D’Anconia’s speech.

If an educator wants to pass on his knowledge for free, that is his choice. It is quite a different matter for someone to demand the knowledge as of right. I will end this piece with this observation regarding beliefs surrounding ‘free trading education’:

“Good no free, free no good”

So if an educator charges a tidy sum,  he can’t be any good at trading, and if he charges nothing, then the education on offer can’t be any good (G). Hmmm….what does this say of the student’s thinking processes?

4 thoughts on “Common Trading Mistakes”

  1. wow, sorry to hear about your friend and student , Ray.
    Hope it is not soemone we know personally./

    A good reminder not to allow emotions get the better of us in trading…

    Good to hear you are better and back in action. Tricky stuff this market

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