Trading Mistakes and Bad Habits to Avoid

I was recently asked about some of the trading mistakes new traders run into when getting started trading.

It was easy to come up with a lengthy list, mainly because I’ve personally made all of these mistakes myself, and in most cases, more than once.

I thought it would be fun to put together a bulleted list of some high-level trading mistakes and bad habits to avoid.

In no particular order, and by no means a complete list:

Trading mistakes and bad habits to avoid

  • Trading with too little capital (relative to costs of commissions).
  • Overtrading when there is nothing to do (again, damn commissions).
  • Averaging into losing trades when it’s not a part of your original plan.
  • Entering into a trade without an exit plan in mind.
  • Entering into a trade risking more than 1 to 2% of your total capital.
  • Entering into a trade based solely on someone’s tweet.
  • Trading without understanding what edge you actually have.
  • Trading to get back gains (revenge trading).
  • Thinking trading is easy after going on a  winning streak.
  • Thinking the market is out to get you after getting stopped out.
  • Mistaking luck for real skill or edge (very difficult to identify).
  • Blaming anyone but yourself for your losses or performance.
  • Letting outside media or opinions influence your trading strategy.
  • Thinking just because you “are a trader” that you need to trade.

What’s particularly dangerous about this list, and why bad habits is a key phrase, is because doing anyone of these can reward you with a positive short-term outcome.

For example, averaging into a losing trade without it being a part of your original strategy can successfully bail you out of an underwater position.

But over the long run, that behavior is all too likely to come back to rear its ugly head and cause havoc on your account.

As I read through this list in the third quarter of 2020 where Nasdaq stocks are breaking records on their relentless uninterrupted climb to new all-time highs day after day, I am once again reminded, how easy it is to form bad habits.

Why honor stop losses and follow conservative risk management rules when stocks only go up? I know this may sound absurd if you aren’t trading through this period, but it’s very easy to fall into these traps when markets reward traders for acting this way for long stretches of time.

I hope this post serves as a little reminder to keep up with your sound trading principles, and if you do find yourself routinely doing anything from above, make sure it is something you have a deliberate and rational reason for.

Anything else you want to add? Leave a comment below.

Thanks for reading and good luck out there.

Enjoy what you read? Share it below and be sure to tag @thetraderisk.

Evan Medeiros

Evan is the founder of the Trade Risk. With 25 years of coding experience and a B.S. in computer science, Evan brings a systematic discipline to investing in the stock market.

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  1. Kathy on 1:31 pm July 14, 2017 at 1:31 pm

    This is really helpful. I have saved it and am studying it, working on the relevant ones in myself.
    – Mom of 5 boys and husband in school.

    • Evan on 2:24 pm July 14, 2017 at 2:24 pm

      Thanks Kathy! Goodluck in the pursuit and keep up the good work.

  2. Christian Salway on 1:46 am July 15, 2017 at 1:46 am

    So true! Emotional side of trading is the HARDEST part to overcome. Took me many months and a LOT of lost capital to sort all those points out.

  3. Spencer on 1:53 pm July 15, 2017 at 1:53 pm

    Um, where do I start??

    • Never set stop losses because you expect the stock to climb.
    • Every stock has its own personality. You better study the charts and take a glance at the fundamentals/ news before jumping in.
    • Does the stock have enough volume to sustain your trade? Don’t buy 50k share when others are buying 10k
    • For every up there is a down. When a stock pops, it’s coming down hard and fast
    • Patience is a virtue. Take a long deep breathe and Wait for the pattern to play out. You’ll be glad you did!
    • Never buy within the 1st 30 minutes. There are exceptions.
    • Just when you think no one wants to buy. someone does. Conversely, just when you don’t think someone will sell, someone does. The stock market is nothing but a game of supply and demand.
    • Find stocks where there is strong demand. Obvious, but stocks move in cycles. What part of the cycle are you looking at (buy or sell)??
    • Bail before the earnings reports are posted. Any news is just an excuse for other to sell

    • Evan on 2:35 pm July 15, 2017 at 2:35 pm

      Great additions Spencer. I like your point on stock cycles. Well said.

  4. Matt on 6:29 pm July 12, 2021 at 6:29 pm

    Great list!

    I think one of the trickiest things for new traders to do is differentiate between good and bad trades. What i mean by this is that most newbies simply look at the individual trade results – if it’s a profitable trade, then they deem it as “good”, and if it’s a losing trade, then they deem it as “bad”. But the individual trade outcomes shouldn’t be what makes them good or bad. Following your system (buy/sell signals, risk management, position sizing, etc.) with consistency and discipline are what make good or bad trades. Sometimes “good” trades can actually be losses, and “bad” trades can actually be winners. And it’s the bad trades that turn into winners that cause bad habits to develop – and eventually lead to disaster.

    Again, the labels of “good” and “bad” shouldn’t have anything to do with the outcome of individual trades. Instead, it should have to do with following your process and sticking to the rules that make up your edge. With an edge, the odds are in your favor over a large number of trades, but there can still be streaks of losses along the way. Appropriately dealing with this uncertainty, risk, and loss on a trade-by-trade basis is what separates the pros from the amateurs. So if you want to achieve long-term trading success, then the proper mindset has to be acquired. This involves thinking in probabilities and managing emotions. Unfortunately, most traders choose short-term emotional gratification (impulsive trading, revenge trading, removing stops, adding to losing positions, and the list goes on-and-on) at the expense of their own long-term trading success.

    • Evan Medeiros on 7:06 am July 13, 2021 at 7:06 am

      Well said. Thanks for adding this one Matt!

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