Throughout my career as a trader, I have learned that the market is a relentless teacher, and the most important lessons often come from mistakes. Adopting a continuous learning perspective is crucial for surviving and thriving.
Here I share some of the most common mistakes I have made and observed in others:
Trading without a defined plan: One of the biggest pitfalls is entering the market impulsively, without a clear strategy. A solid trading plan should include entry and exit points, as well as well-defined risk management rules. Without this map, decisions are based on emotions, which frequently leads to losses.
Poor risk management: Ignoring risk management is a fast track to failure. Risking too high a percentage of capital on a single trade can quickly annihilate an account. The golden rule is not to risk more than a small percentage of your capital on a single trade, thus ensuring its preservation in the long term.
Being carried away by emotions: Fear and greed are the worst advisors in trading. Fear can lead to prematurely closing trades, while greed can incite holding losing positions in hope of a recovery. The key is to stick to the trading plan and avoid impulsive decisions.
Excessive confidence and overtrading: After a winning streak, it’s easy to fall into the trap of excessive confidence, which can lead to taking unnecessary risks. Overtrading is equally harmful, the need to always be in the market, which generates transaction costs and forced decisions. Sometimes, the best trade is to not make any.
Overcoming these mistakes requires discipline, constant learning, and a deep understanding of both the market and one's own psychology. The humility to accept losses and learn from them is ultimately what distinguishes a successful trader.