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Trading Mistakes

Oct 21, 2011 at 9:51 am in Trading Mistakes by

I imagine you’re getting a little weary of my money management talk, and so am I (for now), so I thought I’d end the week with a different topic: the topic of Trading Mistakes.

Punting on Psion

What made me think about this was my recent punt on Psion. When the price fell to 55p I decided to have a go at taking a long position, with a tight initial stop order of course. No mistake there.

My mistake was in forgetting that I had planned the same thing a few days earlier, so I already had an opening order in place to buy this stock if the price fell to 54p. Which it did, and which meant that I ended up inadvertently with a double position in play.

It’s not the worst mistake I could make, but it got me thinking about what other trading mistakes I have made over the years.

Example Trading Mistakes

When I talk about making mistakes, I don’t mean betting that a stock index goes up just before it goes down, as long as you did what you intended to do (but unfortunately called it wrong). I’m talking about ‘schoolboy’ errors of the sort I just mentioned; i.e. forgetting that you already have an opening order in play.

Have you ever placed a bet on a commodity or foreign share in your spread betting account without first checking whether your £1-per-point bet will in fact be equivalent to £100-per-point because that particular instrument is priced per-0.01 units? That’s a mistake.

Have you ever clicked the ‘sell’ button when you meant to click the ‘buy’ button, thereby going short instead of long?  That’s a mistake.

Have you ever sold £4-per-point to close a £5-per-point position, thereby leaving a residual (and unintentional) £1-per-point in play? That’s a mistake.

Have you ever place a stop order at 100 points below the current price when you thought you were placing it at the 100p price level, because you mistook the ‘stop distance’ box for the “stop level” box on the trading ticket?  That’s a mistake.

Have you ever bet on a UK 100 December contract when you meant to bet on the UK 100 Rolling Daily, and based your stop placement on the different price of the latter?  That’s a mistake.

Well, you get the idea, and I’m sure you have your own examples.

What to do when you make a mistake

I’ve learnt through bitter experience that, when you make a mistake, usually the best thing you can do is to correct it immediately by (for example) closing straight away the trade that you didn’t intend to make. You’ll lose a few points on the spread, and you’ll have to admit to yourself that you did something daft, but it’s nothing compared with the damage you could inflict on yourself by just hanging in there and hoping for the best.

Tony Loton is a private trader, and author of the book “Position Trading” (Second Edition) published by LOTONtech.

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