[Book] Real Traders II - an excerpt

Thursday 24th April 2008

Real traders learn from trading mistakes

In Real Traders II, Eva Diaz examines the techniques and strategies of the top traders vying for the first CFD trading competition title in Australia. She also explores the psychological and emotional issues that affect all traders.

As the follow-up to Real Traders, Real Lives, Real Money, this book explains how a landscape gardener turned full-time trader transformed $32 000 into $110 000 in nine weeks trading contracts for difference (CFDs).

In this excerpt we take a look at some of the most common trading mistakes people make.

Trading mistakes
Author and trader Ruth Roosevelt has called it the sin of perfectionism � when traders put a heavy burden on themselves by trying to make only perfect and winning trades. She said the desire of many traders to have a perfect system, a perfect entry set-up, a perfect alignment of indicators and the need to be right all the time could be a stumbling block to their trading success.

Roosevelt, who has coached hundreds of Wall Street and other individual traders over the years, said those who constantly seek perfection in their trading may be doing themselves a disservice.

Exacting such high standards not only decreases their comfort, but also their probability [of winning]. And therein lies the irony. Seeking to do better, they do worse.

Roosevelt is definitely not advocating poor trading standards. What I took from her analysis of this �trading sin� is that people have to realise that trading involves probabilities. There is always the probability that a trade will go against you and there is always the probability that you will make a mistake in one or more of your daily trades.

Once you have accepted the fact that probability plays a big role in trading, you will be able to forgive yourself when you make mistakes � usually. However, you have to learn from those mistakes to make sure that you don�t repeat them. As Winston Churchill said: �All men make mistakes, but only wise men learn from their mistakes�. So, it�s okay to make mistakes as long as you learn from them as well.

Roosevelt has the following to say about perfectionism:

Successful trading has nothing to do with being perfect. There are winning and losing trades and they have to be expected and accepted because they can not be determined in advance. No-one should hold themselves to the impossible standard of choosing only winning trades. There are [also] winning and losing methods. The idea is to find and choose the best for you and hold yourself to the standard of rigorously and consistently applying your chosen method to the market. Being right [involves] taking all the trades your system offers you, not [just] taking all the winning trades it offers you.

Roosevelt devoted a chapter in her book to a discussion of negative trading behaviours. She covers a wide range of issues that traders take for granted, such as skipping trades, not having a trading plan, over-researching, adding to a losing trade, trading too small or too big, blaming others, bragging about trading, fighting the market and getting reckless. Roosevelt encourages traders to identify their personal negative trading behaviours and to seek out the antidote for them. She points out that:

It�s not a mistake to have a trade go against you, but it is a mistake to be inconsistent in following your methods. Remember, we learn through mistakes � if you can�t make a mistake, you can�t make anything. It�s not about perfection, but progression and getting better after each mistake.

Common trading mistakes
I remember there was a point after I had interviewed some traders for my first book when I was pretty certain I would be able to avoid making the most common trading mistakes. The successful traders had told me about the various mistakes they had made and I was feeling pretty confident.

However, before I knew it, I was making the same mistakes they had. I�m now convinced that no matter how hard we try to be perfect and not to make any mistakes in trading, mistakes will always happen. The only way to avoid trading mistakes is to not trade at all.

If you want to succeed as a trader, you have to make mistakes and learn from them. Here are some of the most common trading errors which are explained in more detail in Real Traders II.

Holding on to a losing position
The need to be right
Cutting winning trades
Overtrading
Watching over your shoulder and not your trading
Not having a worst-case scenario plan
Being too conservative or not being aggressive enough
Forcing your opinion on the market

This is an excerpt from Chapter 6, of Real Traders II. Reprinted with permission from Wiley

Real Traders II $33.95 plus p&p is available through the Good Returns Bookstore (www.goodreturns.co.nz/books or call 0800 345 675)

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