The Traders Biggest Mistake

This one blog post could save you hours, days and maybe even months of unproductive work. There’s a big difference between working hard and working smart, I have definitely been guilty of this in the past. I have spent weeks investigating a new strategy or collecting data only for it to provide absolutely no edge and leave the data worthless. This is another factor altogether, there isn’t anything wrong with this necessarily, but following the advice within this blog post will hopefully save you days of mind-numbing testing and unrealistic results.

Let’s take a look at what we’re going to cover this week, do any of these topics relate to you?

  • Errors in backtesting
  • Moving to live capital too quickly
  • Removing/ moving stop losses
  • Seeing negative news and stepping in short

Errors in backtesting

I have been guilty of this at the start of my trading journey and I have seen it many times within the past year with new traders on the trading floor. Backtesting results may look good if you have an 80% strike rate and have made 100R per year, but are they realistic? Can you repeat these results in the live market? I would say, no.

Are you letting your ego take over when backtesting? Does hindsight play a big factor in your results? “Oh yeah I would have actually done that because of this in the market, I would normally get out here but because it’s now gone to target I wouldn’t have got out”. The simple, and harsh truth of this is that you will never consistently make money in the live markets until you are completely honest with yourself in your backtesting.

Top tips for this section

DO NOT;

  • get out at the highest point at the wick of a candle because it came so close to target, this isn’t a repeatable action in the live markets
  • change what you’re doing each trade
  • be dishonest with yourself, don’t ever use hindsight

DO;

  • create a process that is easily repeatable in the live markets
  • account for spread in your backtesting (this can impact your R more than you care to imagine, not accounting for this is going to prepare you for disappointment in your live results)
  • take screenshots of your trades (live and backtesting)
  • review your data once finished (don’t just clap your hands together and congratulate yourself on your hard work for completing 5-years of data, look back over your screenshots and identify common issues, areas for improvement etc.)

 

Moving to live capital too quickly

Too many people want to make “quick” money in the markets by investing £500 into a live account. If you can’t make money on a demo account consistently then why would live capital be any different? You’re better off investing in some good quality education and then sitting an FTMO challenge for £130, if you really are consistent you will achieve a £10k account with this and will be making a lot more money than you would from trading with your £500 account.

Moving to live capital before you’re ready can hinder your learning curve as you may be afraid to make certain decisions. You need to lose and make mistakes in order to learn, embrace a demo account and embrace losing trades, learn from these and don’t make the same mistake twice. You will be consistently profitable before you know it.

Removing/ moving stop losses

What good is a stop loss in the market if you’re going to remove it when price comes near it? If you haven’t accepted the risk, you shouldn’t be in the trade. This stems from a few factors such as a lack of confidence in the setup, if this is also the case, then you shouldn’t be in it either. Take time away from the live charts to test your strategies and theories, it will allow you to be a lot more confident in your execution.

Seeing negative news and stepping in short

We have seen this too many times as well, you see some negative news for the dollar for example and you decide that $USDJPY must be a definite winner if you step in short. We are technical traders, we use fundamental news only as a secondary tool. The following quote summarises this perfectly in my opinion:

The market can remain irrational longer than you can remain solvent.

John Maynard Keynes

I would like to leave you with one final quote to end this week’s blog post, this is a great quote from Stan Weinstein that every trader should implement within their trading:

Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey …it will wait for a baby antelope, and not just any baby antelope, but preferably one that is also sick or lame. Only then, when there is no chance it can lose its prey does it attack. That, to me is the epitome of    trading.

Stan Weinstein

Until next week, safe trading!

Jake