Common Trading Mistakes

Over time you make many trading mistakes. And if you trade socially e.g. on eToro, you see others making similar mistakes many times over. I wanted to point some of these out so that others can avoid them, or at least have a laugh knowing that they’re not the only ones to have made a particular mistake.

Please note that some of the below are only relevant to bull markets, and those who trade over periods of weeks or longer.

1. Bailing at the first sign of red — have a plan for how much you’re willing to draw down and stick to it. It takes some practice to stomach your investments turning red, but if you’ve done your homework and are within your thresholds then stick with it, and buy more if your strategy allows for it. The corollary being: don’t hold on beyond your plan’s allowance!
2. Buying high and selling low — when you read or say the words “buy low, sell high” it always sounds incredibly obvious. Duh! But, in the excitement of the markets you will see the bulk of the people selling a stock/crypto/other that has recently decreased in value to buy a stock/crypto/other that has recently increased in value. You’re literally selling low to buy high. I see this every. Single. Day.
3. Buying something because it’s gone up-and-up — an extension of #2. Some times you will catch the momentum of the market, but this is often down to luck. The higher and longer the rally, the closer you are to correction. You should instead be looking for those instruments that have gone down-and-down. It is almost impossible to time the bottom but to can dollar-cost average your investment when the bottom seems close.
4. Using High Leverage — if you trade on a platform that allows the use of leverage the temptation (especially when you start) is to use high leverage and make a packet. Unfortunately it often goes the other way!
5. Selling an investment that has been in red for ages and just turned green — this one tempts me quite often, but when you’re thinking about selling ask yourself, “Why did I buy this originally? Is the company/crypto still solid? What is my plan?”. Quite often you should continue to hold (but sometimes it might be right to sell).
6. Trading with your emotions — another one I see everyday. Try to identify if you’re angry, frustrated, elated, in love etc., and if so try to put that emotion away before trading.
7. Becoming part of the Cult of [Insert Investment Name] — this is related to #6 and is much harder to identify because you are now part of a cult. The Cult of Apple, the Cult of Bitcoin etc. Once a member of a cult it is very hard to break free and you are at risk of this clouding your judgement. The best way to identify this scenario is to ask your friend “Do you think I’m Culty?”, and then ask for an intervention if they answer in the affirmative.
8. Putting too much faith into technical indicators e.g. moving averages, RSI, Fibs etc. I use these a helluva lot, but professional investors roughly give technicals:fundamentals a 20:80 weighting when determine what to buy or sell.
9. Trying to time the top or bottom — this is effectively impossible to get perfect (although you might get lucky!). The name of the game is managing probabilities and spreading risk.
10. Being put off by a loss — everyone loses money from time-to-time, and investing is a lifelong game. The idea is to win more than you lose!
11. Not having a plan, or not sticking to your plan. Know your market inside-and-out (or copy someone who does), set profit and loss thresholds, and keep a log of your trades so that you can learn from what you’ve done well and badly.
12. Not being patient!
13. Putting too many eggs into one basket. You should split your intended investment amount into several parts. In general the more you split it, the easier it is to balance your risk although too many parts can become an admin nightmare.
14. Lack of focus — you only have so much time in this life, and ideally you should know your set of stocks and their industry very well! This may seem to contradict #12 but you are aiming for a balance.
15. Trading with your life savings — do not use more than you can afford to lose. When you’re doing well there’s likely to be a voice in your head that says, “If only you’d invested X you would’ve made Y-times your return!”. Ignore this voice, know how much you can really afford to trade with and rigorously stick to that amount!

Let me know if there are any common mistakes I’ve missed and that you think are noteworthy!