The 30 most costly trading errors

Discussion in 'Trading' started by Cutten, Jun 10, 2009.

  1. Cutten


    “It’s hard to repeat a brilliant performance, but it’s straightforward to avoid errors” - Paul Graham

    The most costly mistakes usually have one or more of the following characteristics in common. Feel free to add your own suggestions, but only mistakes that tend to cost a lot of money, not minor errors. Also, I encourage anyone to post "war stories" where one or more of these errors was involved. Here goes:

    1. Not honouring your stops.
    2. Becoming seriously emotionally destabilized (going on tilt, freezing up, getting mad)
    3. Allowing a big loss to become a huge loss.
    4. Trying to average down on a losing position.
    5. Revenge trading
    6. Trading too big or too leveraged.
    7. Short options premium.
    8. Trading too big in illiquid markets, and getting “stuck” on size.
    9. Getting cocky after a good run or a big winning trade.
    10. Having on lots of highly correlated positions.
    11. Not exiting all positions and going away from your screens when you have a big destabilizing loss.
    12. Getting tunnel vision - only focusing on things going right and how much money you think you will make, rather than how much you could lose if you’re wrong.
    13. Being in very crowded trades.
    14. Having an inadequate or non-existent plan for how to limit losses if the trade is wrong
    15. Not reducing size or stopping trading during high market volatility e.g. market crashes, surprise news, gap moves, short squeeze, earnings or figures etc.
    16. Major surprise market moves: especially gaps, surprise rate cuts, government/regulatory intervention, takeovers, or other shock news events.
    17. Assuming you are right; not thinking of what could be wrong with your position.
    18. Taking positions without doing proper preparation.
    19. Thinking emotionally about the money or position size
    20. “It’s the markets money” - ignoring risk on positions with a large open profit.
    21. Failing to double-check before & after a trade for any order entry or position mistakes - buy instead of sell, fat finger, wrong stock/market etc.
    22. Failing to reconcile statements with your expected positions.
    23. Ignoring counterparty & broker credit risk & financial condition.
    24. Leaving open orders when you go away from your screens.
    25. Staying in a position past first delivery day or on the day of contract expiry.
    26. Ignoring fraud risk (if you employ anyone or give them your money).
    27. Trading a deliverable contract without having delivery capacity
    28. Not having redundant computer/internet/power/data/broker setups.
    29. Trading while drunk, high, exhausted, divorcing, mourning a death in the family etc
    30. Trading on other people’s tips
  2. Unit001


    the greatest mistake you could make, is to give up. Giving up is what does most of you in. People simply can't put in 5 years or more of work, and that's what it takes.
  3. Cutten


  4. ElCubano


    32. Starting to trade for living. :D
  5. Yup.
    - Unfortunatly the learning of 1 thru 30 must come the
    up-close-and-personal way.
  6. Thanks for all your Tips above! :)

  7. I agree with pretty much all but #7, not sure why that's on the list?
  8. hajimow


    I think he knows it better and he has been bitten with that like me. You make money 50 times (small) and once it eats all your money. Do Iron condor instead of strangle or do it on ETFs and not on individual stocks.
  9. Cutten


    Because lots of blowups involve being short premium.
  10. Redneck


    May I add

    Taking 100% accountability for/ of your actions and results


    Seeing reality for what it is... not what you want it to be

    #10     Jun 10, 2009