Week 23: Simple Ways to Eliminate Trading Mistakes

Zero.

That’s the number of trading errors I’ve made this year. I’m not writing this to brag, there’s actually a good reason why I am mentioning this and if you continue reading you will learn how I went from making a couple of mistakes every month to zero.

Trading mistakes are an elusive element in the planning stage of a trading method. When forecasting potential performance, most people do not factor in or anticipate trading mistakes, human errors and things that are simply out of the control of the trader i.e. unexpected power cuts, computer failure, setting stops losses incorrectly. All of these can happen over the course of a year could produce an extra 3 -4 losses on top of normal peaks and troughs on your equity curve. What if you were in the middle of a horrible drawdown? These extra losses could be catastrophic.

Working on reducing mistakes is something that is very important and will benefit your bottom line. It’s not a stretch that it could add an extra 10-15R to your yearly performance which is huge. Here are 3 simple things I did to reduce this type of trading loss:

1. Follow a plan – I wrote about trading plans last week because I’ve seen a lot of traders get confused mid-week about the direction they should be trading. They will have changed direction 2 or 3 times on the same market because they haven’t followed their higher time frame plan so they end up letting short term volatility dictate their trading decisions. Not all movement on in lower timeframes is noise but I’ve noticed the large moves usually also have a HTF reference point.

2. Comment on Trades – Every time I made a trading mistake, I made sure to write a comment next to it on my trading log along with what can be done to avoid it happening again. This helps to highlight the mistake in your mind to make it more memorable and ensures that you learn something from it.

3. Backup – Plug points of failure and you will no longer be at the mercy of unexpected interruptions:

Brokers and Trading Platforms

I use 3 different brokers and different trading platforms. Along with broker executions problems, sometimes there will be problems with a datafeed or there will be chart inconsistencies so it’s always helpful to verify it somewhere else. This can help to avoid problem areas particularly when there are large spikes or gaps on charts and you don’t know whether to trust them or not.

Internet Connection

I’m with BT and their service to my area is terrible. If kids in Ethiopia had my internet connection they would be saying “WTF is this shit?” as well. I pay an extra £15 a month for a backup connection to ensure that things work as they should. If you have similar problems then a backup connection would be a good solution. It doesn’t have to be an extra phone line, something like portable wifi will do the job.

Power Supply

Power cuts probably happen once or twice a year at most but they can cause irreversible problems. If you are not working from a laptop then there’s a good chance a power cut will mean lost work and, in the worst case, being unable to manage a large position. You can buy external power supplies from Amazon and they are relatively inexpensive.

Controlling the unexpected and learning from mistakes is how you reduce mistakes to zero. I’ve used the tips above to eliminate a lot of unnecessary losses.

Thoughts on The Trading Week

I wasn’t expecting this week to be anything spectacular with the UK elections mid-week but it turned out ok. I took position on EURUSD at the start of the week and was flat going into the election results.

I don’t trade big news events so it just felt like a normal week of trading (though slower and a shorter trading week). I know a few traders stayed up late into the night to trade the results but I’ve always preferred not to do that because trading news is not my area of expertise and there are almost certainly better and more informed traders than me operating at the time (among other things that do not shift the odds in my favour).

Despite the election, I ended the week positive with some good trades taking only took one position in FX. Along with Forex, I’ve also recently applied my method to stocks and it has been showing some early positive results with 3 trades this week while still holding a position from May for decent risk rewards.

I’m excited to trade stocks alongside FX and found it to be a good way to leverage my previous work. The whole process of identifying trades is quite enjoyable too. In terms of refinements there’s probably still a long way to go but by applying my data from FX to it, at least I have a good foundation and it should only require a few small tweaks with no surprises.

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