What are some of your biggest trading mistakes and what did you learn from them?

"The only mistake in life is the lesson not learned .” — Albert Einstein

It would not be unfair if we call markets a profession of making mistakes :slight_smile: . What is unique about markets is it rewards those who don’t repeat their old mistakes and punishes those who repeat the same mistakes again and again.

In my 7 year experience as a Trader/Investor, I have committed many many mistakes - so many that I can create a diary out of it :slight_smile:

Let us all share our past experiences and also our current mistakes (preferably one a day if we have many :slight_smile: ) so that others can learn something from it.

If articulating our mistakes even helps in stopping a single person from doing it, it would be considered as a great gesture on our part.

With that spirit, Let us all use this thread to enrich our trading/investing experience by learning and growing from our mistakes as a community.

PS : To keep a track of it, we can all use #1 , #2 :slight_smile: whenever we share anything.

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#1 - Trading without any knowledge of the instrument that I was trading in.

FIrst big and harsh lesson that I learnt in my earlier days was how trading in complex instruments like options without having the requisite knowledge is a sure-shot way of losing.

It is okay if we lose money after having the basic knowledge of the instrument. (it is market after all).

But if we lose money, without knowing how and why we are losing it, that will make us shell out extra money and shelling out extra money during the earlier stages always slows down our journey considerably. (Rule 101 of Deficit financing)

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#2 - Thinking that making money in the market is easy :slight_smile:

Blew up twice, had to do all types of jobs to repay my trading debt. 2 years the first time I blew up, 4 years the second time. And then the realization that stock markets are the toughest place in the world to make easy money. The realization was also that it is easier to make money buying lotteries than trading the markets if not trading right. At least when you hit a lottery you don’t end up putting all your back into lotteries, unlike in trading.

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#3 - Realize that trading derivatives is a negative sum game

After accounting for all the regulatory charges and taxes, speculation in the derivatives market is a negative sum game. As the saying goes - there is a time to go long, a time to go short and a time to go fishing. Overtrading will kill you - both financially and psychologically.

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#4 Penny Stocks will make you a millionaire.

When I first opened my Demat account, I started trading random stocks and one day came across a stock trading at ₹2, lost half my capital on the same day, and later bought another penny stock on delivery, losing whatever capital was left in the trading account.

I had no idea what an upper or lower circuit is. Funny, I guess never clicked on market- dept itself. 😂

Sometimes unpleasant experiences teach us lessons we should have learned earlier.

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I was waiting patiently with Adamant hope when making a loss and exit earlier when making a profit.

While making a loss, many times will wait without any logic(fundamental or technical) to avoid loss, but ultimately blew up the trade.

When the market moves up, placed a correct order that will cover all the losses made before, used to exit with the bare minimum profit, which satisfies at that point. But after an hour became sad only to see that exited order producing a jackpot profit.

Practicing discipline on being patient when the position you have making a profit is the mantra to success.

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#5 I wish i knew Second Level thinking in my initial days

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@nithin sir, I watched your podcast on Beerbiceps. I always wonder, how people used to plot charts, put stoplosses and everything else when everything wasn’t online during those days?

trying to chase the price instead of waiting for the price to come to me. blew my account many times trying to trade seeing only a part of the trend.

few days back bought Axis Bank futures at 781. was sure it will reach 800. on last monday panicked when price started to decline n exited at 785. today it is above 800.

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If you panicked at the slightest decline that probably means that your position size was too big.

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Did not know that there was something called technical analysis. Used to buy on news. All was well till 2015. And then the down trend started. Later started going through TA.
Initially used to look at the indicators while trading that too on lower TF (5min). Later got to know that it is price that drives these indicators and not vice versa. Switched to higher TF (day) which had less noise.

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Can I post stuff that I learnt from, because it will explain it waaaaay better than I can do myself?
I have a few collected from books, blogs, interviews, magazines, etc… that I consider golden.

Please do. We are all eager to learn. :slight_smile:

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First One:
Options Trading

"Back in 1982, while I was within the process of training to become a stock broker, I was on the floor of the AMEX where I met an options specialist. I had been trading options since 1974. So, to meet an option’s specialist to me was like meeting a rock star. Needless to say, I was full of questions and as one question lead to the next, the exchange closed trading for the day at which point I was invited to join my new mentor for a beer.

There are two very distinctive things I remember from that encounter. The 1st was the reply he gave me when I asked how he made his money. With beer in hand, he said “I never make big bets.” I lean a little one way, as he tilted to the left, or I lean a little the other way as he tilted to the right. He repeated this swaying until his beer was gone.

After ordering another round, he turned toward me and said, “I’m going to give you the best piece of advice anybody will ever give you. I want you to take a $100,000 paper option account and try to lose all of the money.” I started to laugh. He did not. He then said, looking me straight in the eyes, “You will not be able to do it.” He said being a good trader is not about making money. Making money is about being a good trader. And being a good trader is about having the right rules to make a decision and then following those rules. So when you try to lose money, you are just as likely to fail as you are when you try to make money. The difference being in this exercise is to separate the two motivations.

Then he started to laugh and concluded his thought trend by saying, “When you finally have figured out how to lose consistently, and your paper portfolio is gone, you are now ready to trade. Simply flip the rules around and you’ll have your money making trading system. And always remember one thing - that there are two sides to every trade. You just have to learn on which side to lean.

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Second one:

Stop Loss

Trading is like driving blindfolded down a long road with a cliff face over the sea on one end, and a luxury golf course on the other.

Your first aim should be to build a solid wall on the cliff end, making it a dead end.
You set off hoping you’re facing the right direction. The worst you can do is hit the wall, but you’ll never go into the sea. Eventually you get better and better at sensing the approach of the wall and you put the brakes on earlier and earlier. Your trading method helps you with this.
Now that plunging into the sea is no longer a threat, the only destination possible is the golf course.
What does this mean? Trade defensively - don’t lose. If you don’t lose, you can only win.
How can you do this practically?

Enter ALL high probability trades, stick with trades that show very early promise, get out of trades that don’t show very early promise.

The good ones you miss out on trading this way (“if only I’d waited 2 minutes”) could also be the ones that drown you on another day (“If I’d got out 2 mins. earlier…”), so have no regrets. In the long run you are a winner. Time = risk, so minimise it! Get better at identifying imminent moves instead of getting good at waiting and hoping!

If you’re really good at ‘not losing’, winning will come to you effortlessly.

All traders make winning trades, the good traders just lose less.

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Third one:

Trading for comfort

Here is a sequence I observe among many active traders:

It begins with uncertainty. The trader isn’t sure which way the market is going, but feels the need to make a trade. Instead of sitting back and letting the market show its hand, the trader is leaning forward, hand on mouse, ready to pounce.

The market moves higher by several ticks, as one or more program trades take out a few levels in the ES futures.

The trader now expresses frustration, “I should have bought there.” He leans forward even more, hanging on every tick.

The market ticks down, then up. It’s a slow market. The trader doesn’t see that the recent move up was on minimal volume and that the midday trade is quite narrow. Suddenly the market ticks up one more time and the trader can’t take it any more. He lifts the offer with his usual size, afraid of missing the move up.

There is no profit target or stop loss articulated. This is not a trade designed with good risk/reward parameters, because there are no parameters. This is a trade designed to minimize the discomfort associated with not being on board for a move.

The market suddenly reverses and retraces its recent gains. Now the trader either has to get out with a loss or hang in there and hope for a reversal. His frustration builds, leading him to continue his overtrading, and making it more likely that he will stick with–and even add to–losing trades.

Our trader is not trading to make money. He is trading to regulate his emotional state. Once he becomes attached to the need to trade and make money–and once his perfectionistic voice of “I should have bought there” enters the picture–he is no longer grounded in markets. It’s when those frustrations build over time, becoming self-reinforcing, that traders “go on tilt”.

By staying physically relaxed in one’s breathing and posture and by mentally rehearsing a mindset in which it is OK to miss moves–there will always be future opportunity–traders can prevent many of these train wrecks. The practice of taking a break during the trading day, reviewing one’s state of mind, and clearing one’s head is remarkably effective in this regard. Clearly identifying the parameters of one’s trade–the optimal size, reasonable targets given market movement, stop loss points that put risk and reward into proper alignment–also ensures that you are controlling your trading, not the reverse.

There are many ways in which the body controls the mind. If you are not physically calm and collected, it will be difficult to make calm, focused trading decisions. By working at observing yourself as you trade, you gain the ability to interrupt destructive sequences and regain control. Ultimately, going on “tilt” is the result of a loss of self-awareness. Once you remember yourself, you’ll be able to access your skills and knowledge.


It didn’t let me post more than 3 replies in a row, so I’m editing this to include the fourth and last one…

Fourth, and the LONGEST one, but IMO, the BEST one:

Dealing with uncertainity

This was a comment posted by someone to an “expert” on a trading blog, long ago, I forget when and where… but I would have hated to be on the receiving end of this comment, esp if I claimed myself an “expert”…

I’ve been reading your blog for quite a while now but haven’t commented yet. However, I feel I need to comment now.

If you don’t mind I’m going to be very straight forward, and blunt even, but I hope you’ll take it from a spirit of sincerity and genuine desire to help. It’s going to be a long comment, so I’m going to break it up into 2 or 3 comments.

Here’s the situation as I see it: For the last few months, and possibly much longer, you’ve just been spinning your wheels while thinking that you are getting somewhere. The reason for this is that you are going about learning how to trade in the wrong way, in my opinion. I say this because I’ve been trading much less than you, a little over 2 years now, and yet because of the way I went about learning and what I focused on, last year I netted $150k while nearly quintupling my account, without a single losing month, and while only risking a very small portion of my account on any single trade. Now there could be many reasons for the difference in performance, but I think one of the main reasons has to do with what you are focusing on and how you are going about the learning process.

To try to put it as succinctly as possible, in my view traders that are focusing all their attention on “set-ups” and finding out which combinations of indicators work are never going to become profitable. They are trying to follow the advice of trading books that say trading is simple and psychology is everything. So they search for set-ups that ‘work’, and that can take the guess work out of trading. They want to be “disciplined” and have simple rules that guide all their actions. But there’s a few problems with this. Namely, while psychology is HUGE, it’s NOT everything. And while trading is all about simple principles, actually having an edge is NOT simple. It’s a myth that you can have a couple simple price or indicator set-ups and make money consistently if only you are disciplined. That’s a load of crap. It keeps the dream alive for wannabe traders who never realize what it’s truly about. Well let me tell you what it’s truly about…

Trading is about being okay with ambiguity. It’s about tolerating confusion. It’s about sitting with discomfort and being at peace with it. It’s about not having an exact script of when to trade or not to trade, or what’s really a high odds trade, and being okay with that. It’s about exceptions to the rules. It’s about contradiction. It’s about uncertainty.

And yet traders left and right want to make it simple. They want to reduce it to a few simple set-ups to trade with discipline. And yet the market is not simple. The market is all about uncertainty, and complexity, and ambiguity. Simple set-ups could never capture that, and they can never give you a true lasting edge.

So what’s the solution? Is the problem in the simple set-ups themselves? No, it’s in how they’re being used. The bottom line is, every trader needs to learn to READ the markets. This means that simple rules will not do. There has to be a synthesis of different elements (whether they be price action, indicators, inter-market themes or whatever), and real-time interpretation must take place. It has to be all about CONTEXT. Once you can read the markets, and don’t fool yourself it is a very complex process, then you can choose to employ “simple” set-ups to enter and exit. But the real work will be in interpreting the market to see when you should use which kind of set-up. Seeing a hammer or whatever near a support means nothing unless you’ve identified the broader picture and gotten a sense of the kind of tactics you should be using, and what the odds are for different scenarios unfolding.

Now I know you, and most traders do this to a certain extent, but your main focus is on the set-ups. It’s not on reading the market from minute to minute, hour to hour, figuring out the odds of it doing this or doing that, adapting dynamically, and thinking of trade ideas from all your observation as the day unfolds. Rather, it’s waiting for some simple set-up to pop up and then taking it.

Now is it easier emotionally to have clear set-ups to wait for and trade in this simple manner? Absolutely. But who said ‘easy’ would make you money. If I’ve learned anything, it’s that the market rewards what is hard to do. It’s hard to have ambiguity surrounding your market reads. It’s hard being uncertain. It’s hard dealing with competing and sometimes conflicting signs. And yet, this is what it’s all about. You have to stop trying to avoid this by needing things to be clear cut. And is it hard to be disciplined when there’s so much uncertainty about what is the right trade to make? Of course. But instead of trying to avoid the uncertainty by looking for simple set-ups, or some straight-forward method, train your mind to be able to deal with the uncertainty.

As for the learning process of how you go about doing this, it’s all about being constantly engaged with the markets, trying to figure things out and learn from experience. For me, for instance, what I did was each and every day take notes in a journal all about market action and what I think it means, and how I should trade, and what is working and what’s not. I didn’t write a journal describing the trades I took, or what my emotions were during the day. It was all about market action. And it was all my perception and interpretation. Day after day, week after week, making mistakes, wrong calls, being clueless as to what was going on, not knowing how I should trade, not knowing if my views made sense or not, and yet I continued taking notes and learning. Then I would view charts and combinations of historical intraday charts, and I’d note certain behavior. For example, I’d study trend day after trend day and try to notice what they had in common and how I could have picked up on it in real time. Then I’d study range days. Then I’d study a price chart of the ES versus the Advance decline line and see what the relationship was across many different days. Then I’d do the same with the ES and TICK chart. And on and on. Over time, this gave me a feel for the markets, and a certain understanding of how certain days differ and many subtle signs and tells for each type of environment and context.

As for set-ups, I didn’t use any predefined ones. I just formed trading ideas and then tried to get in at good trade locations. Even this, which is the art of execution, is quite complicated and not straight forward. I started realizing that in some environments it’s best to wait for pullbacks, in others I need to get in at market or I’ll be left in the dust. In some markets I can buy low and sell high, in other markets the opposite is in order. And so on.

I became consistently profitable in a timeframe of a few months by doing this. But of course before that I had read 30 or 40 books and so I had all the technical background. I had also worked a lot on my psychology and personal issues. But all of this was in conjunction with a method of learning and trading the markets that was mostly in opposition to what the general wisdom says about simple set-ups and exact rules.

Now of course you might say that everyone has their own style, some discretionary and some not. Absolutely. But even the purely mechanical traders are very adept at reading markets, and are aware of all of the complexity and ambiguity inherent in it. Their system might end up being simple, but it will come about through a very deep and complex understanding of markets. And usually this system will take the market environment (i.e. context) into account. It wont just be simple mindless set-ups.

In the end, all of what I am saying is meaningless unless you come to a personal realization. Take a look at your trading career thus far. Do you truly believe that if you just learn to focus and take all of your set-ups then your equity curve will reverse and you’ll be a consistently profitable trader? Why would the world’s top institutions spend millions and billions on R&D when a few simple set-ups could make them all of the money. This doesn’t mean that to make money you need extremely complex mathematical models. Far from it. What it does mean is that you need extremely complex mental maps that take time and experience to develop, and that will never develop if you spend the whole trading day simply waiting for set-ups to materialize. That just won’t cut it.

Right now your learning curve is stagnant because you’re not truly studying the markets. Your day is wasted in waiting mode. It’s not in observing and absorbing mode. Also, because you fear loss, you aren’t willing to experiment. This means that you aren’t making mistakes and failing regularly, which is what you need to do to learn quickly.

So to conclude, based on all of the above, my advice to you would be to stop trading and make a mental shift. Realize what you need to do to become successful, and it’s definitely not staying on this endlessly unfruitful path being supported by the hope of future profits. You’re just running in your place unless you change your focus and your learning method. And if you thought the journey was tough so far, you haven’t seen anything yet. Get ready for uncertainty and ambiguity like you’ve never seen it before. But this shouldn’t be scary. It should be exciting, because this is what trading is all about. This is why it’s called an ART. And it truly becomes one when you change your focus and your learning process. Then everything, including success, becomes possible. And until then, it’ll be a distant dream that keeps appearing to be so close and yet stays so far away.

So you need to re-align with a new thought system and then get on the simulator and trade. Take losses. Make mistakes. Be clueless. Don’t be afraid of it. It’s okay, that’s the only way you’ll progress. And trust me, progress you will.

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When you wrote if you can post stuff from books blogs interviews magazines etc, did not expect to be placed in front of great wall of words and asked to climb up… (oh read).

The first and second post were ok - understood.

The third post - the edit portion blew my brains off - who is “your blog” and who is “who”. Are you referring to some blog post or what.

The swag in your sentence “waaaaaaaay” gave me goosebumps but after reading, well…

Goodness me - I am blessed I am a investor and not a trader. Will never cross this gate ever into trading.

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Sorry, I would have explained it better if I could write the entire post. But since it was posted as an edit, and it was a loooong post, I was mincing words. Yes, it was from a comment from a trader to some trading bloggin site.

Thanks to your feedback, I edited the intro to the fourth entry… hope it clarifies things.

Wow, I started as a investor, and got tired of reading the tons of pages of annual and quarterly reports and financial statements, auditors comments and disclosures, and then came to trading… Best of luck to you if this was a “gate”.

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38 steps to becoming a trader

They are as follows:

  1. We accumulate information - buying books, going to seminars and researching.
  2. We begin to trade with our ‘new’ knowledge.
  3. We consistently ‘donate’ and then realise we may need more knowledge or information.
  4. We accumulate more information.
  5. We switch the commodities we are currently following.
  6. We go back into the market and trade with our ‘updated’ knowledge.
  7. We get ‘beat up’ again and begin to lose some of our confidence. Fear starts setting in.
  8. We start to listen to ‘outside news’ and to other traders.
  9. We go back into the market and continue to ‘donate’.
  10. We switch commodities again.
  11. We search for more information.
  12. We go back into the market and start to see a little progress.
  13. We get ‘over-confident’ and the market humbles us.
  14. We start to understand that trading successfully is going to take more time and more knowledge
    than we anticipated.

MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALISE WORK IS INVOLVED.

  1. We get serious and start concentrating on learning a ‘real’ methodology.
  2. We trade our methodology with some success, but realise that something is missing.
  3. We begin to understand the need for having rules to apply our methodology.
  4. We take a sabbatical from trading to develop and research our trading rules.
  5. We start trading again, this time with rules and find some success, but over all we still hesitate
    when we execute.
  6. We add, subtract and modify rules as we see a need to be more proficient with our rules.
  7. We feel we are very close to crossing that threshold of successful trading.
  8. We start to take responsibility for our trading results as we understand that our success is in us,
    not the methodology.
  9. We continue to trade and become more proficient with our methodology and our rules.
  10. As we trade we still have a tendency to violate our rules and our results are still erratic.
  11. We know we are close.
  12. We go back and research our rules.
  13. We build the confidence in our rules and go back into the market and trade.
  14. Our trading results are getting better, but we are still hesitating in executing our rules.
  15. We now see the importance of following our rules as we see the results of our trades when we
    don’t follow the rules.
  16. We begin to see that our lack of success is within us (a lack of discipline in following the rules
    because of some kind of fear) and we begin to work on knowing ourselves better.
  17. We continue to trade and the market teaches us more and more about ourselves.
  18. We master our methodology and our trading rules.
  19. We begin to consistently make money.
  20. We get a little over-confident and the market humbles us.
  21. We continue to learn our lessons.
  22. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and
    our trading account continues to grow as we increase our contract size.
  23. We are making more money than we ever dreamed possible.
  24. We go on with our lives and accomplish many of the goals we had always dreamed of.
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