Trading Mistakes and Lessons
I always keep my mistakes and lessons learnt in front of my screen while trading. Because we as traders tend to commit the same mistakes every time.
“Learn from the mistakes of others. You can’t live long enough to make them all yourself.”
— Eleanor Roosevelt
Having your lessons learnt right in front of your eyes every day, reinforces positive habits and ensures that you avoid repeating your mistakes.
In 2017, I analysed all my trades and saw that I have majorly lost in stock futures and profits came only via index trading. I accepted that I am not great at stock trading and been majorly trading the index since then.
I decided to adjust all of my past losses to 1 % of capital to see what would be the effect of capping the downside on my trades. I would have had a gain of more than 230 % if I had capped losses at 1% of capital.
Lesson 1: Keep losses less than 1% of capital.
While trading index options, at times I have lost big money due to IV rise, flash crash and option freezes.
Lesson 2: Always keep OTM protective stops in the system to keep losses under control in case of any unforeseen event.
Being an option seller, I have a tendency to manage my positions by rolling strikes up or down or converting the existing positions to calendar spreads. Many a time, I have wasted 1 or 2 weeks just to close a loss-making trade at cost.
Lesson 3: Manage the trade(some people like to call it fire-fighting) only till the time the sold option become ATM, but exit as soon sold option becomes ITM or the option premium becomes 2 x in value.
“Option sellers eat like a chicken but shit like an elephant”
So always manage risk while selling options. Events such as corporate tax rate cut, demonetisation or the steep fall of 2020 are black swans and if not managed properly can take away years of profits or even wipe out your entire trading capital.
Lesson 4 : Never underestimate the markets. Anything can happen at anytime so always manage your risk.
Changing bad trading habits is quite a task. I used to commit the same mistakes for years, in spite of being aware that I shouldn’t commit them. We as humans tend to behave in a certain manner every time even if it affects us adversely. So, it’s best to keep your lessons learnt/mistakes made, written in front of you. As a ritual, I read them both before I start trading. Maybe you could give it a try too. Journaling your trades can go a long way in helping you analyze your mistakes. Becoming a better trader will require a lot of self-introspection and an in-depth analysis of your trades.
If possible, write about your biggest losses and how you felt at that time so that you make sure you never have to go through that emotional pain again and you don’t repeat your earlier mistakes.
Lesson 5 : Emotional capital is more important than trading capital
“Anyone who has never made a mistake has never tried anything new.”
― Albert Einstein
Happy Trading!
