Top 5 Trading Mistakes and Practical Tips

We all do mistakes. It is part of the game. I wanted to compile Top 5 most important mistakes that traders (including myself) do and what to learn from them and how to avoid making the same mistake again. The most important thing is to realize the mistake and then take appropriate action to correct it.

Let’s have a look at the type of mistakes:

(New) traders expect too much too soon…

If you are in a new relationship, you know that relationships require commitment and hard work! You need to get out of your comfort zone and do things that you normally wouldn’t do to please the other half. In time, hopefully it gets easier, you know what your partner’s likes and dislikes (and you wouldn’t take her to Malaysian restaurant ever again if she has nut allergy – like I did it with my wife when we were dating). Trading is like relationships. You can’t expect too much too soon (if you do, you will get a slap!). You need to learn, absorb as much as you can and work on it. Things take time, trading is not a get rich quick scheme, in the contrary, it requires discipline, hard work and total commitment to make it a success. It is not uncommon for good traders to spend a few years to get to the top of their game. And don’t forget, as a trader, you are a student for life, constantly learning and adapting to ever changing market conditions. So next time when you think you traded for full 10 days and still can’t make top dollars, think about how much it would take to master anything in life. Tip: A trading diary is a good way of recording your lessons in trading. So you can go back and see what works what not for you. In time, you will see the changes and improvements which will motivate you and make you a better trader.

Undertrading or Overtrading

This is a common problem for newbie and also for experienced traders. Unfortunately, human nature is greedy. We are never satisfied with what we have (this is also part of what advances humanity as a whole). We don’t or can’t see ourselves overtrading until the session is finished. Then we review the day see that we have overtraded to make more money. Or perhaps over traded and took more risk to be able to finish the day in green (and most of the time you will end up more in red). In some circumstances, some folks are scared to take great trades and giving up easy potential profits because they are not willing to enter a trade when they see a good opportunity (undertrading). Both of these can manifest themselves in variety of different ways. I chat to many traders and see this often (including myself). Tip: The best way to overcome overtrading or undertrading is to have a trading plan for the day. You can write this down or tell to yourself that what do you expect to achieve from the trading session. This of course very much depends on the overnight scans and also morning action, so your plan will change according to this. Once you reach your trading goal for the day, make sure you are not starting to take trades are much riskier than your normal setups. When you are in Euphoria from your winnings, you tend to think you will win with any given trade (absolutely not good trading habit). This happens to me a lot and lately, I start to leave the session all together to give myself a small break to come back to planet earth! This way, I can think more sensible and take calculated risks again instead of any risk! Easier saying then done, still working on this and leaving the session for a break and go for a coffee or drive is my way of coping with it. Everyone is different, whatever works best for you. Find it.

Lack of Patience

It still amazes me how patient we can get in a losing trade (and not cut it off and take the loss – unless it is a planned swing trade it is completely different story) and if we are winning how impatient we can get…We just want to take that profit (although you know that it is too early!). This is a psychological phenomenon. If you are wrong, human brain tries to find reasons why you are right (i.e. you start looking at Twitter for supporting arguments for your loosing trade, you look at the internet and read anything available out there to prove your point to yourself and others) but the reality is you are wrong. Market is acting against you and you are wrong. Period. If you are winning, Fear of Missing the Profits, kicks in and you look for any excuse to get rid of that trade so you can proudly say you made money on that trade. Tip: Patience is a learned process. It can be developed as a trading habit. As a hyper-active person, I haven’t unfortunately blessed with patience. However, some of you following my trades know that I can be very patient when it comes to some swings (especially if I am convinced about the particular trade). I frequently make very good money on that patience (perhaps most of my largest wins come from patient trades).  One important thing here is not mixing patience with hope. They are completely two different things. If you are in a trade and ‘hoping’ that the price action will change and hopefully you make money, you need to cut it off there and then. Patience is acceptable when you have an edge. The edge that gives you confirmation and conviction of that trade. Otherwise simply let it go….


I have written about size control in my blog a few times. In my opinion, controlling trading size is the BEST thing you can do in trading. Most traders take too much risk with trading size compared to their account size. I am seeing too many (especially new) traders smoked with only one or two trades simply because they played too big!

Trade size is directly correlated to the risk of that position. The more size you have, obviously the more risk you are taking at a given trade. Most good traders chose not to go full size in a position but keep adding to a winner. In this way, you can just risk the profit and have a nearly risk-free trade. But we all know that, life is unfortunately not that easy and trades go against us. In this case, the importance of the trade size once again come to play….

Tip: For me it is very easy. If the trade is making you nervous (a bit of nervousness of course normal, what I am talking about is being very nervous / being scared from that trade – it can take you out if it goes against you) then you should be out of that trade immediately! Not later, do it now! Like the bees programmed to protect the queen bee, your number one job as a trader is protecting your trading capital. For most traders, if they are smoked, they don’t have another chance to come back to trading. That’s it. So next time when you trade, manage your trading size accordingly, if it starts to get you really nervous, you know what to do…And don’t forget, it will be your fault if you are nervous, because it means you are trading with wrong trading size!

Failing to accept responsibility against your own mistakes

Forget about accepting responsibility for your own mistakes, some traders do not even realize they have made a mistake (see some AVXL cult longs). Realizing your mistakes will make you one step closer to become a better trader. Accepting responsibility for your mistake is great for you for two reasons: 1) You know what you have done wrong so you will hopefully learn from that mistake 2) Now you know what works instead, next time you will use that to your advantage to make a successful trade. I am unfortunately seeing a big blame game between traders. A wrong trade is never their own fault! It is always someone else’s fault (someone told me to buy this, someone told me to sell this otherwise I wouldn’t, etc.). Tip: GROW UP! You are responsible for your own actions. It is all good that we share information via internet or other mediums but it is ENTIRELY your responsibility to enter a trade or not. If you do, you should have a PLAN in the first place – why you entered in that trade. Have you executed that plan to A to Z? If the trade went against you what was your risk mitigation plan? Don’t forget self-justifications distort reality and if you are not in reality you are not learning. So next time something goes wrong, first understand what went wrong, then accept your mistake and think about what you learned and what you will do about it next time. I also strongly suggest to write this down (we tend to forget mistakes easier than our success).

I always tend to take responsibility and announce my mistakes to my friends and followers. I like doing this because I am learning something new every time from my own mistake. I also have the upmost respect to people who do the same in our community. We are very blessed with great traders and we can also learn from each other’s mistakes.

Thank you for your time and I hope you found this useful.


5 thoughts on “Top 5 Trading Mistakes and Practical Tips

  1. As always, thoughtful, insightful and helpful Luis, thanks!
    Find myself being less and less guilty of all of these things as Im progressing. Patience is for sure the hardest thing for me, that FOMO is something I battle with all the time. Having a trade plan and keeping a log with comments is helping me loads.


  2. This is great. As a new trader who works full time (so I’m trading incognito at work), I really struggle with under-trading. Second guessing my trade and thus, not pulling the trigger. Seems like every time I hesitate and miss the trade.. it ‘would’ve’ worked out.. but.. that’s why it’s hindsight I guess.

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