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Best Stock Traders: Learn From Your Mistakes

In life as well as in trading the only true form of growth is to learn from your mistakes. Everyone has made mistakes in the trading business, its natural. I always remember the famous quote from Bernard Baruch who said, “the main purpose of the stock market is to make fools of as many men as possible.” I must admit that the market has made a fool of me on more than one occasion. As you know, the trading game is a humbling business. The only way to succeed is to learn from the errors that will be made along the way. I always tell new traders that you must learn from your losing trades! If you look at it that way, you have actually paid for a valuable trading lesson, so it is not a total lose. If you do not learn from your losing trades then you will simply repeat the same mistake and it will cost you more money.

 

Here are a couple of quick tips to keep you from repeating the same mistakes in the market…

 

Document every trade: Keep a trading journal. Write down why you entered the trade. Be really specific about this. Note the chart pattern, the trend of the stock, the upside or downside objective and of course the stop loss. By doing this, it will teach your brain to really examine what you are doing. So many times I see people fight the trend just because a stock is into some resistance and then they end of losing money. Keep it simple, this does not have to be rocket science.

 

If you are a day trader you should note the time of day that you have entered a trade. I did this many years ago and found out that the first 2 hours of the trading session was when I was most profitable. Believe it or not, the late afternoon was when I got into trouble. This was discovered because I kept a trading journal and went over it every week. These days I prefer to day trade in the first couple of hours. If I do day trade in the afternoon it must be a really good chart setup with an extremely high risk / reward trade pattern.

 

Learn to read and understand the charts. One of the easiest things to do is to understand the trend, but you will be surprised that so many new traders cannot identify it. Also, learn the value of moving averages. This is another simple area of charting that most people fail to learn. I have consulted for many financial institutions that trade off of fundamentals and they even use and follow moving averages. So if the big money is following something you should too.

 

We will all make mistakes in this business from time to time even if we study and constantly learn. But the key to this business is to win more than you lose and to lose small when you do lose. This is much more difficult to do than it sounds, but it is attainable. Follow these couple of tips and you will be on your way to a more profitable trading business.

 

Nick entered a new options position today and alerted his Bullseye Options Alerts members live! Check it out here!