In forex trading, as in life, it is common for people to make the same mistakes over and over again. It’s one thing deciding that you need to learn from your mistakes – and this is of course a vital step – but it is quite another to recognise what you can learn from making a particular mistake, and what you can do to avoid making it in future. So, it’s not as easy as it sounds, this learning from mistakes thing, but there are three main reasons why many traders fail to manage it.
In order to know what you should do differently in future, you need to know where exactly you are going wrong. For example, many traders stick with the same stop loss every time, regardless of whether they are trading a 15 minute chart or a 4 hour chart. As a rule, stop losses should be decided on a case-by-case basis, being placed at a strategic point rather than just a fixed number of pips away from your entry point, but not everyone is aware of this rule. For example, if a 20 pip stop loss is working for you on a short time frame, it probably won’t work so well on a chart with a longer time frame.
2. Failing to do analysis after-the-fact
Again, this is one area where the complexities of trading make it difficult to draw the correct conclusion, but this shouldn’t put you off attempting to draw one. For instance, let’s say you’re a day trader that makes around 10 trades a day, and finishes most days with a profit. If two or three of these were impulse trades that went wrong, you might not pay much attention to your mistakes because your profits made up for them. Therefore, these trades would fly under the radar and you would draw no conclusion about them, such as ‘my reasons for going into these trades were wrong, I should stop doing them or I will go broke’. Therefore, for each trade, you need to analyse what you did, learn from your mistakes, and draw a conclusion.
As any successful trader will tell you, you need to be disciplined and stick to your trading plan if you are to get anywhere as a trader, but the majority of newbie traders fail to do this. Often, this is born of stubbornness and a need to be proved right, rather than taking an objective view of your trading behaviour and the efficacy (or otherwise) of your trading plan. For example, you might enter a short trade based on an analysis you did, but lost out big time as the market rallied. Then, in an effort to prove your analysis right, rather than admit it was wrong, you keep making the same type of trade until you either run out of money or the market does indeed reverse, by which time your account will most likely have been depleted.
In trading, mistakes should be viewed as an opportunity to help yourself improve and become a better trader. Ultimately, everyone makes mistakes from time to time, but if you can recognise them and learn from them, your performance will only increase over time.