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How to find the root cause of my trading mistakes n the solutions ?
I'm a beginner n under a mentor-guided training for almost 2 years. I'm at the brink of getting into real world trading but struggling of finding the root cause of my own trading mistakes n the solutions to fix them. My mentor told me every individual is all unique n therefore he could only provide the answers on the general issues. I have found my mistakes to the best of my knowledge. However, I don't know if I'm absolutely correct. Also, the solutions that I myself thought would correct my errors do not really target the issues. My mentor just cannot do anything further. I want to ask any experienced traders who have been on this path before n how they break through their own hurdles. Thank you so much.
Can you help answer these questions from other members on NexusFi?
While I only started trading last year, and have made a little bit of money here and there while trading mostly simulations, I think I have some input here.
For me, I had to think about the type of personality I have. Am I eccentric? Do I feel a rush to gamble or can I control those emotions well? Do I prefer going outside for a walk or playing video games indoors?
These are different questions to ask yourself, yes, but in my opinion are good ways to start honing into your personality to see what kind of trader are you. In this way, you can start figuring out what kinds of mistakes you may make (e.g. overtrading, breaking rules, distracted, etc.) and see if they apply to why your trades aren’t going the way they should. If those mistakes can explain why your trades are bad, then they may be the mistakes you were looking for
For example, my answers to those questions are:
(1) Yes, I find myself wanting to interact with my friends and start loud and engaging conversations or have a good time with them outside. I also tend to get lost in my own thoughts and talk in tangents, which may explain why I have a lack of focus
(2) I prefer to gamble. Im still a newbie, so I still feel that exhilaration when placing a trade. I believe this is a flaw in my trading personality and should be controlled so that I can trade more rationally.
(3) I prefer to stay inside and play video games. Unless I’m prompted by friends, I usually don’t have a reason to go outside. Although I know that going outside frequently has benefits regarding my physical health, I cant help but want to grind more in Valorant or make progress in Civilization V. This setback to my physical health might cause me to lose my mental edge when trading, since exercise usually leads to improvement in mental health
With these reflections, I probably make (beginner) mistakes such as overtrading, trading on emotion, not identifying support/resistance due to lack of focus, trading too large, and letting losers run while taking profits too early. I also can make technical errors like improperly managing a trade, which can result in losses when a trade is actually good, or a huge loss when I couldve gotten out breakeven. Looking back at my trades, I see these mistakes happen frequently, so I have to be mindful when executing my next trade.
This method of course, completely tackles psychology and says almost nothing about flaws in your system or rules. More experienced traders will have to comment on identifying flaws in your system!
Thank you for your reply. My issues are mostly pre-mature entry n exit and sometimes would be late entry/exit. I mainly practice on treasuries n use DOM to execute trades.
I would say the root cause of this is not having confidence in how you are trading. That seems strange after 2 years of personal mentoring, although I can see it happening.
If you had confidence in where the system/approach says you should enter or exit you would not need to do it early or late - you'd follow the plan exactly. You'd have confidence the strategy/approach/system knew best.
But, on the other hand (which I think is the case here), if you doubt the approach, or don't feel comfortable with it, your mind will invent reasons to disregard the suggested entries and exits.
You dont understand the real nature of the trading.
Possible is NOT your your system, is YOU.
Your emotions and what you see and think.
The market only give you a signal and nothing more, is your brain and emotions who read this signal and decide to make some action.
See and read Trading in the zone of Mark Douglas
As noted before, it would be presumptuous to try and diagnose your issues based solely on what you wrote, but a few things do come to mind:
1. Premature entries and exits are usually results of fear: FOMO (hence entry without the signal completing) or fear of leaving money on the table (hence untimely exits).
These can be improved through technical work (i.e. clearer and stricter rules) up to a certain point, but beyond that point - the errors are psychological in nature.
2. Each trader's reasons are different for making these errors, and must me diagnosed.
I can suggest a rather simple exercise:
Replay an erroneous trade bar by bar, closing your eyes and trying to replay your thoughts/self-talk during the trade. It can help to do this with someone.
notice thoughts like:
- "here it is. man, I'm gonna make a kill on this one".
- "oh, no, it's moving without me. no time to wait.
- "I'm not sure: is this bar cause for exit or not?"
- "darn, it's turning and the profits are gonna evaporate".
You'll be surprised what comes up if you do this honestly, and the thought stream can be used as an important diagnostic tool, guiding you to the real problem.
The problem is never the premature entry, it's overcoming the specific fear that's causing it.
Once you have a better idea of your error-causing though pattern, you can try and devise ways to to break it.
3. Notice none of these common thoughts are focused on the important question: is this, right now, a signal in my system or not? This is the essence of trader mindset transformation: changing your focal point from trying to guess the future result of a specific trade, to "what is really happeing right now in the market and what action (if any) how does my system call for right now"?
4. IF the leading thoughs are "I'm not sure whether this qualifies as a signal or not", THEN and only then is the solution mainly technical in nature - at least for the immediate first step.
5. Ultimately, the more confidence you have in your ability to to profitably operate the system (note - not "in the system". systems don't make money, people do) the less you will be prone to such errors. That's a bit of a "chicken and egg" situation, of course - but it's one we must all go through.
The best teacher is live trading! But, that's why you only trade money you can afford to lose. Once you learn how to exit trades on the downside, you'll also learn how to win.
