What’s the most common mistake traders make?
It’s not placing the wrong trade, exactly. Traders do that all the time and they live to recover.
It’s not ignoring your stops, although you absolutely should follow your stops.
No, the most common mistake traders make is analyzing trades one at a time.
It’s so easy to fall into: you had a big loser, and you ignore the fact that your last six trades were winners that more than balance it out. Or you had a small win and you feel like a million bucks, forgetting that the system has given you loss after loss after loss.
Traders love analyzing system this way. They’ll backtest their system, and if it loses too often, they’ll kick it to the curb, never seeing whether the wins would be bigger than the losses.
That or they’ll blind themselves: they’ll “backtest” a system, but they’ll convince themselves that they would only have traded the winning trades. But there’s a better way…
The Better Way
There’s an approach that I think is better, but only the top one percent of traders use it.
Instead of analyzing your trades, you need to analyze your portfolio.
Here’s a little thought exercise: if you make $500 in one trade, and then lost $50 on each of your next nine trades, are you a winner or a loser?
If you answered “a loser,” you’re thinking with a Cy Young mentality. Pitchers are measured by their win-loss record, and 1-9 is pretty bad.
But if you answered “a winner,” then you’re thinking with a one percent mentality. The best one percent of traders will recognize that individual wins and losses don’t matter. What matters is that you win over the long haul.
If you start thinking about trading like that, you’re going to be able to find better systems and have greater success. That’s how true traders win.