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February 07, 2007 at 10:15 am | | Comments 2

Learning From Trading Mistakes

Bob trades online so his dumb mistakes remain anonymous.

While I’m not a backtester, I do believe that we can learn a lot as traders by reviewing our trades of the past. After all, if we can’t learn from our mistakes, how can we learn at all?

The member area of TheStockBandit.com has a feature called “Trade of the Week”. It’s a useful area that a lot of members comment on due to the lessons taught there. The T.O.W. is a look back at a trade I took each week and how it turned out. Some of them work beautifully and I get to brag a little, but the ones that we all learn from the most (myself included) are the losing trades which are dissected after the fact.

JAH is one trade I recently featured, which was a channeling stock I took for a short sale at an area of resistance. My stop loss level was close by and the stock had bounced on diminishing volume right up to the upper channel line. I went short, but the stock soon after broke above the trend line, triggering my buy stop to take me out of the trade for a small loss.

After examining the trade closely, I determined that if I were given the same setup again, I’d trade it again the same way. I just like these setups because in every case my risk is quantified with a good potential reward, and that’s the cornerstone of how I trade. However, in this case I was objective and this was one trade in which my timing was simply off. Sometimes the lessons are minor, but being willing to take something away from a closed trade is the mentality we need.

It always surprises me how even selecting just one trade per week to examine more closely helps me learn and apply that lesson better going forward. Over the course of a year, I end up being a lot smarter as a trader.

What are you doing to learn from your trading mistakes? In my next post, I’ll show you a great way to learn from your past trades which is so simple you won’t believe it.

Until then, trade well!

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

[tags]Stock Market, Trading Profits, Profit Targets, Stock Trading[/tags]