20 Trading Mistakes Not to Make in 2020:  Learning from mistakes as an automated trader

20 Trading Mistakes Not to Make in 2020: Learning from mistakes as an automated trader

20 January 2020, 23:01
Thomas Woody
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Trading is hard.  Even the little mistakes can have a negative impact on your bottom line.  Below I have shared mistakes that I’ve made in the past, grouped into 4 different categories.  Hopefully you can avoid these mistakes yourselves.  If you have questions, advice, or similar stories, I’d love to hear from you.  Happy New Year!

Careless

These are all simple mistakes that can occur due to a lack of attention to detail.  1-3 are more likely on the MT4 mobile platform.


1. Not looking at the spread before taking a trade:  Don’t get to comfortable with what the spread “normally” is.  Things such as time of day and big events can make an enormous difference in the spread.  The first time I made this mistake, I saw a big gap between major market hours (a time that I don’t normally trade) and thought I’d take advantage of it.  If I had looked closer, I would’ve realized that the spread was bigger than the gap.


2. Enter a trade for the wrong currency pair:  This sounds crazy but it is easy to do on the mobile platform if you are monitoring more than one pair and make a quick decision.


3. Enter a trade for the wrong lot size:  Same as #2 above, but sadly I’ve done this on my PC as well.


4. Open two windows with the same currency pair:  I’ve done this running the Finch Robot, which runs on many currency pairs simultaneously.  I lost track of which currency pairs I had it running on and ended up with the same currency pair in two separate windows. 


5. Not look at EA settings closely:  This is very general and should reinforce the need for attention to detail.  A second look at ALL of your settings before clicking OK provides a great return on investment.  Keep in mind that some of the more error likely fields may have coding solutions to make them closer* to idiot proof (*nothing is completely idiot proof!).

Technical


1. Try to beat the market response when US Non-Farm Payrolls (NFP) are Announced:  My personal experience is that there is value in trading the retracement following the NFP announcement but placing a trade in what I think is the correct direction within seconds of the announcements seldom ends well for me. 

2. Turn off Auto Trading without closing EAs:  I thought turning off the main MT4 “Auto Trading” button would be a good way to turn off all my EAs, rather than closing all of the individual windows.  This may work with some EAs but the ones I run kept trying to trade, it was as if they were trying to trade but just blocked from accessing the account.  No actual trades were made but I was getting many notifications to my mobile platform as the EAs would get errors when the trade was not successful, and then they would try again.  When I turn my EAs off for NFP (that’s about the only time I turn them off), I just close all the windows.


3. Add money to an account with an equity monitoring EA:  I run an expert advisor that closes all trades when my account equity rises by a fixed amount.  I have transferred money into that account without turning off the EA.  The EA sees the equity rise and closes all trades.  Depending on how exactly the EA is doing the calculation, this can have devastating consequences if your account is in big drawdown at the time.


4. Lose connection to the server:  This could be your fault (e.g. not being logged in) or not your fault (e.g. VPS crash) but the key is how you handle it.  When I was surprised that no automatic trades were occurring on Monday, I brushed it off as being that Monday was a slow day.  When no automatic trades occurred on Tuesday, I knew something was wrong.  By the time I got home from my day job Tuesday night and discovered the problem on my VPS, I had already lost two days of trading. (Shameless Plug: No more VPS crashes since I switched to RouterHosting.com).


5. Screw up MT4 Passwords:  I admit I am not as diligent as I should be keeping up with the passwords for my various accounts, especially the investor passwords.  Remember when changing investor passwords to update any third parties that rely on the password (e.g. myfxbook, etc.).  Also, don’t be a dummy like me and accidentally set your investor and main password to the same thing.

Strategical

1. Hedging Mistakes:  I’m in the US and not allowed to literally hedge, but I have sometimes attempted to mitigate losses by opening a correlated pair in the opposite direction (which I refer to as hedging).  I’m not experienced with this but so far have made two big mistakes. 
  • Think I’m protected by hedged positions when one of them had a stop loss on it.  This happened during the December UK election.  I had open positions on GBPJPY and GBPUSD in opposite directions.  My thought process was that they would offset each other and minimize any losses.  However, one of them had a stop loss order in.  As Murphy’s Law would suggest, the one with the stop loss turned out to be the winner.  When the GBP made a huge move, my winner closed about halfway through the movement and the loser was allowed to run.
  • Taking a hedged position to minimize drawdown on an open trade.  I had a trade in big drawdown but wasn’t ready to close it as I was expecting it to turn around (which it eventually did) but because it kept moving against me, I took an equal position on a correlated pair to offset any additional damage or “stop the bleeding” as I like to say.  However, when the market took a rapid turn and the 1st trade went back to break even and I wanted to close it, I realized that the opposite trade was just as negative as the first had been.  This could have been managed better.  My problem was simply that I did not have a plan.  Of course, it is always a mistake to not have a plan.


2. Kill a winning trade with a stop loss that is too tight:  I think many of us have done this one.  We have a winning trade and want to protect our win, so we put a stop loss (or trailing stop) in.  Then the trend turns, hits the stop loss to kick us out of the trade and then proceeds to move in what would have been a favorable direction.  Don’t smother your winners, give them some room to breathe.


3. Corner myself with FIFO:  With my broker I only must comply with FIFO on trades of the same size.  When I have a trade that is a big loser, I will take a second or sometimes even third trade to try and recover.  When I do the third trade, to minimize risk, I monitor closely and sort of “nickel and dime” against the loser.  By nickel and dime, I mean close the third trade after small wins and then look for another opportunity for a small win.  This only works if the lot size is different then the second or third trade.  If I am careless and open the third trade with a lot size the same as one of the first two, then when I want to minimize my exposure by closing a trade, I have to close one of the big losers instead of the one I just opened that is probably suffering just a small loss or win.


4. Enter a 2nd or 3rd trade too soon:  This boils down to impatience. While I am pretty good about looking for at least two indicators to tell me a trend is going to turn, I’m not very good about waiting for price action to back the indicators up.  Granted, I do this because I’m not able to watch the chart at the frequency I’d like to but there is no doubt that this bad habit costs me money.


5. Prioritize the strategy over the goal:  Remember that the goal is to make a profit.  While there is tremendous value in keeping your hands off and “letting the system work”, don’t allow things to go south in your live account for the purposes of getting an accurate picture of your system’s performance.  An automated system will require some manual action.  If you have an automated system with a high profit factor that never requires intervention, then you have found your “holy grail.”

  Philosophical

1. Think that trading is easy:  As I said earlier, trading is hard, that means it takes a lot of work.  Don’t under estimate what it takes. Check out my previous post about the 50/50/90 Rule.


2. Not walk away when I should:  This is a tough one and what trading really is all about.  When you are losing you must have the frame of mind to know when to stop.  When you are winning you need to know when you’ve won and not get greedy.  This was better said by Kenny Rogers as “You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away, and know when to run…”


3. Blame the market:  You just can’t blame the market, period.  Luck does exist but take it out of your vocabulary.  Manage your risk, own your losses and take credit for your wins.


4. Fail to keep a journal:  I’ve heard so many successful traders emphasize the importance of keeping a journal.  This is something I’m hit or miss on, it tends to run in spurts.  I do know things go better when I keep a journal.  I also know that going back looking at old journal entries provides amazing insights.


5. Trade at an in opportune time:  I do like to trade from my mobile platform and won’t apologize for that.  However, a mistake I’ve made is entering into a position that requires close monitoring or action at a time when I can’t give it my undivided attention and then fail to act when required because I am unavailable.  This can sometimes be managed by entering profit targets and stop losses that sort of bound the situation and then intervening when possible to “help things out.”


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