“It is said that only a fool learns from his own mistakes, a wise man from the mistakes of others.” Otto von Bismarck.
I am sure you heard the quote above many times and that you understand its meaning, but I want to focus a bit on the first part “…a fool learns from his mistakes…” Well, what does that make me if even a fool learns from his mistakes, but I don’t? Unfortunately, when it comes to Forex, I make the same mistakes over and over again… and I bet I’m not the only one. Sometimes our inner self is our worst enemy… heck, sometimes I think my inner self is paid by my broker to make me trade like an idiot, but assuming that’s not the case, let’s take a look at the reasons why traders repeat their mistakes.
1. Lack of Proper Knowledge
If you don’t know you are doing something wrong, you are probably going to keep doing it. Let’s take an example: if you didn’t learn that a Stop Loss should be variable, you might end up doing the same mistake over and over again. Some traders use the same Stop Loss when they trade the four hour chart and when they trade the 15 minute chart. If a 30 pip Stop Loss is Ok for a smaller time frame, it won’t do you any good on a four hour chart. Also, your Stop Loss order should be placed at a strategic point, not a fixed amount of pips away. You cannot just decide “I’m gonna use a 20, 30 or 50 pips Stop Loss every time” because the market might not agree with your predetermined number. This mistake falls into the category of mistakes which are generated by the lack of knowledge and of course, the topic is so broad that I could probably fill more pages that you could read. Then again, this statement might be wrong because I don’t know how much you can read… see, lack of knowledge.
2. Failing to Draw a Conclusion
Think about this: if you hit your head on a wall, it will hurt, maybe even bleed if you give it all you’ve got. Inevitably, you will draw a conclusion: this wall is harder than my head and I’m gonna stop “punishing” it if I don’t want pass out. That’s an easy conclusion. But sometimes in trading things are not so black and white: say you are an intraday trader and you take about 10 trades a day, finishing the day in profit. If one, two or three were taken out of impulse, those can easily go unnoticed because at the end of the day you are giving yourself a nice pat on the back and think about what a great trader you are, not about the mistakes you did. In other words, those monkey-trades how I like to call them fly under the radar and no conclusion is drawn i.e. “I took some trades out of impulse, frustration or greed. I must stop that if I don’t want to blow the rent money”. Bottom line: after each trade, stop and analyze what you did. Learn from your mistakes and draw a conclusion.
3. Being Plain Stupid
Let’s face it: some people are just not cut out to be traders…because they’re stupid. And I’m not talking about “stupid” as in low IQ or low grades in school. No, no, a “stupid” trader can be a very intelligent person, but when it comes to buying, selling and following the rules of a system, they fail miserably… mostly because they cannot learn from their mistakes. The stupid trader will make the same mistakes over and over again because of his stubbornness and his need to prove he is always right. If today he sells while the market is rallying big time and he gets stopped out, tomorrow he will sell again and again, until he runs out of money or until the market finally reverses. If the latter is true, he will declare his victory over the market, stating with a deep and important voice: “I knew it was coming down.” Yea, stupid, of course it’s gonna come down eventually, but that doesn’t make you right.
Cockiness, Insanity and a Touch of Love: Why I Love Mistakes
The most important – and probably single – reason why I love my mistakes is because they help me improve. You cannot become a better trader without being wrong a few times. I admit, I probably made all the mistakes in the book and yes, I also repeated them but eventually I managed to overcome the stupid urge of being self destructive and most of all, cocky. Yes, cocky because that’s what you are when you don’t admit you are wrong and keep doing the same thing over and over again. I say “cocky” but a famous quote which is often attributed to Albert Einstein says: “insanity is doing the same thing over and over and expecting a different result”… So what are you? Insane or Cocky?
Guest Post by Nathan Kay
Nathan is the youngest son of a Forex addict’s family based in Cape Town South Africa. He is a Forex Trader, Coach, Mentor, Contributor and lately, a full time blogger. Nathan Recently launched his very own blog called Forex Is Why Im Broke, devoted to helping traders avoid Forex Scams, Stupid Strategies and other trading mistakes. Nathan Moto for life: Success consists of going from failure to failure without loss of enthusiasm. Trade Well!Get the 5 most predictable currency pairs