Learn From Your Mistakes

The path to trading success is built on a series of failures, or mistakes. This is no different than in life, where we often learn more from our poor decisions than our good decisions. 

Successful traders study their mistakes to find the errors, and then they fix them. Sure, they'll make the same mistakes again sometime, but less often; and they'll recognize them sooner, so they can take corrective action. 

It can be easy to identify a mistake if you take a close look at the stock chart, but acknowledging that you made a mistake is sometimes harder. It is easier to blame the market makers, the high-frequency traders, or the hedge fund managers.  

Technical analysis is easier than self-analysis. Be honest with yourself, but also be kind to yourself. With every mistake, you are learning and becoming better.

A good way to identify and study mistakes is to print out a chart of the trade; include the timeframe on which the trade was made, as well as the next higher timeframe. Many mistakes are due to missing the higher timeframe condition.  Grab your red pen and make notations of things you missed or misinterpreted.  

Many traders find that they missed the "simple" things. Perhaps they went long "below" the supportive moving average, or when the moving average was falling. Maybe they bought a new price high when there was negative momentum divergence (bearish).  They might have bought a breakout where the volume was weak. 

Once the mistake is discovered, add the corrective solution to your buying checklist. Checklists help traders improve their discipline by reminding of them the conditions that favor a successful trade.  A checklist reduces errors. Follow the revised checklist on the next trade, and keep revising it, if needed, until you get it right.

There are often underlying mental or emotional explanations for why mistakes are made. Write down the mistake in your trading journal, and try to explore the reason why you made the mistake. Where you being impulsive? Where you trying to make back a loss? Were you buying at resistance or shorting at support?

Keep a scorecard of the frequency of your mistakes. We often repeat the same mistakes over and over. By keeping track of how many times you make certain mistakes, you can better isolate the mistakes that need a deeper analysis of your mindset or emotions. 

Mistakes will always be present in trading, but try to avoid making "unforced" errors--don't beat yourself. Overcome your mistakes, and profit from the lessons they teach. In this way, your mistakes will guide you to ultimate success.

Important Disclaimer:

The information presented in the Stock Pick of the Week is for informational purposes. The information was based on data and charting programs from independent services and CC Trader LLC d/b/a TradeLikeaPro does not guarantee the accuracy of the information used in the analysis of securities presented. The information is not offered as a basis for making trading decisions based on securities presented. Investors and traders should conduct their own independent research before making any investment. Nothing contained herein should be construed as a recommendation to buy or sell any securities. Investing and trading involves risk. Before deciding on any investment, you should consider your investment objectives, level of experience, and risk tolerance. Do not trade with money you cannot afford to lose. You should seek investment advice from a professional investment advisor before engaging in investment activities.

Traders should check numbers for accuracy before relying on them for trading decisions because typographical errors will sometimes occur.