In life, nobody is perfect and mistakes are inevitable. Like life, no trader is perfect and mistakes can happen. When they do, they can be expensive. If you’ve been in the game for some time, there’s no doubt had your shares of mistakes and in hindsight many of them could have been avoided.

I’ve been in the trading business for more than twenty five years and I’ve had more than my fair share of mistakes. I’ve come to learn that there are different kinds of mistakes: those relating to the trade and those relating to the trader.

To frame this correcting, losing money hurts. For a trader, your trading capital is your admission ticket to the game. Without trading capital, you don’t trade – it’s that easy.

The errors made in relation to the trade are ones caused by being on the wrong side of the fence. When you place a trade, there are three outcomes – you profit, you lose, or you break-even. Being on the wrong side of a trade is an occupational hazard.

While being on the wrong side isn’t a happy experience, it comes with the territory. The first lesson that you learn in trading is that the market is always right – period. Trying to prove the market wrong is fruitless, painful and a sure fire way to blow a hole in your trading account.

The second lesson that we all learned was that the first loss was always the best one. A small loss should never turn into a big loss. This is a lesson in stop losses as well as money management. I can live with a number of small losses. Psychologically, I just move onto the next trade. The ability to take small losses is what separates professional traders from amateurs.

The errors that occur relating to the trader are in most cases avoidable and inexcusable. The first is occurs during entry and that is the direction of the trade. Nothing galls me more than wanting to be a buyer and entry a sell order instead. This kind of error occurs about evenly between the opening and the closing position.

After several of these mistakes, I actually designed a new order ticker. My BUY orders are blue and my SELL tickers are red. I keep my tickets with me – so when it comes time to close a trade, I match it up with the opposite color. This action alone reduced my errors to almost zero.

If you find yourself on the wrong side on entry – close out the position as soon as you notice it. There’s no excuse for holding this trade more than necessary. Close it and start over.

The second error I see traders make is the failure to either put on their stop order or to cancel the sucker once the trade is off the sheet. When I started as a broker, these tickets were written out and handed in. I kept a ticket file on my desk with all my clients’ GTC orders. Once a week or so, I would look through them to see if any needed to be updated or changed. This kept me on the ball because if the client closed the trade and I forgot to cancel a stop order, any error on the trade was mine.

Now, I simply enter my trade online. There is no real fail safe and every once in a while, I am reminded (albeit costly) of such because I forgot to cancel the order. Diligence is the key to not making any errors and your trade tracking system should make some mention of what to do about stops and other GTC orders.

The next error is one that I sometimes run into when trading forex. It has to do with time. More specifically, what time does this thing trade or what time does it close? I’ve managed to have a few sleepless weekends when I was locked into a trade over a weekend because I forgot to close the thing on Friday before the market closed.

There are dead hours when trading forex. I call them dead hours because when I find myself in one of these zones – I’m dead. These are the times when trading is very light and the spreads widen to a point where you could drive a truck through it.

Mistakes are inevitable because all humans make them. Almost all mistakes are costly too. Traders need to be aware of the different mistakes they are most susceptible to and take steps to minimize them where they can.

Author's Bio: 

Robert Christy is the President/CEO of the Christy Investment Group, a fee-only Long/Short equity management firm whose goal is to make money in ALL market conditions regardless of the direction of the stock markets, interest rates or the dollar.

Over the past 25 years, he has spoken and written frequently for national publications about business, finance and investing. He advises, educates and mentors traders through his trading service, The Intelligent Trader.

He lives in Roswell, Georgia, with his daughter, Ashley and his dog, Coach.