Futures For You by Carley Garner
What is the biggest mistake you see traders make?
We all know that trading, particularly on leverage, is a difficult venture. Consequently, the odds of committing mistakes outweigh the probability of the perfect trade. With that said, I’ve made and witnessed plenty of mistakes throughout my career.
The most common, and perhaps the most detrimental, is the human tendency to chase markets. The general public wants to become bullish after a market has already nearly exhausted a rally, and bearish while prices are in despair. Those who don’t chase markets often make a similar mistake of holding onto losers, only to bail on the trade at precisely the worst time. Warren Buffett said it best: “Be fearful when others are greedy, and greedy when others are fearful.” Yet emotion entices us into doing the opposite.
The theory behind the behavior of buying high and hoping to sell higher — or selling low with the intention of buying it back even lower — is trend confirmation. Nearly any trading book you pick up with have the text “the trend is your friend” in it, so it isn’t surprising that we are trained to chase prices. Too many want the comfort of knowing that market momentum is moving in their desired direction before they commit their hard-earned money.