Step 007 – Learning From Mistakes

mistake-876597_1280We all make mistakes. I have read that how good a trader you are is a function of how many mistakes you make. The Master Trader makes very few mistakes, that’s why he’s a Master!

Initially, I made a lot of mistakes, as I guess most people do when they start out. With time, I’ve been able to learn from my mistakes and as a result, I’ve been able to prevent myself from repeating them. I’ve found that I learn best from my mistakes when I really take the time to write down an analysis of the mistake; what exactly happened; what caused it; what can I do to prevent it happening again?

Today I made a mistake, and I thought I’d make my thought process public. Maybe
I can learn something from you (please leave a comment), or maybe this can help someone else in their process.

What happened?

I came into today (Feb 3rd) having a short bias on the EURAUD, so I was looking for a signal to go short. The signal came just before 9AM where a big black bar formed after the previous bar closed above the 20 SMA. I went short at the close of the black bar with my initial stop beyond the top of the previous bar.

So far so good.

Now one may argue that it would have been better to wait for a slight retrace, but my analysis has shown that the entry I took is a perfectly valid one. No mistake there.

Hourly chart of EURAUD showing my original stop and the modified stop.

Here is the mistake: I almost immediately moved my stop down to just above the 20 SMA. This behavior is not a part of my system, and so it is a mistake.

In this case it turned out to be a costly mistake since I was stopped out a few hours later just before price started heading down! Had I kept my original stop, I would have profited from the move and made at least 0.5R on it, possibly 1.6R depending on how I would have managed the trade. Comparing that with the actual result of -0.70R, this mistake cost me at least 1.2R!

What caused the mistake?

Now why would I move my stop? The stop determines how much I am going to lose if I’m wrong. If I tighten my stop, I lose less money if I am wrong. But I also increase my risk of getting taken out without reason, just from the random fluctuations of the markets. Which is exactly what happened. And after taking me out, the move that I had anticipated actually happened.

I was right, but I lost.

And I see clearly now my mistake: I was (subconsciously) thinking “I’ll lower my stop, so that when I’m proved wrong, I won’t lose that much…” In other words, I was thinking that this trade would not work out, and I took the exact steps to make sure that it did in fact not work out!

So, I got to be right about being wrong. But I still lost.

I actually love this about the markets. There is really no better way to expose the old mental blueprint and all it’s crazy ideas and addictions! – Like for example that being right is more important than long term profits…

Most people believe that trading the markets is a battle of you against a lot of other traders. But it’s not. Trading the markets is your own battle with yourself – nothing more, nothing less.

What can I do about it?

How can I prevent mistakes like this to happen in the future? Short answer: Improve my thinking! And I do that by staying faithful to the new thinking patterns I am installing in my subconscious. I do it by reminding myself again and again what my trading rules are, by constant repetition, by religiously following my checklists. I do it by constantly seeing myself as the Master Trader I intend to become. By getting in touch with and staying connected to that future me!

I know I can do this. One step at a time, with practice to perfection! This is one more mistake that is not going to repeat – and that’s the really good news!

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