My favorite mistakes (favorite because I make them so often):
- Taking too many shares in hopes of a bigger profit. When I do this, to avoid going over my max risk on any single trade, I inevitably set my stop loss too close to my entry, which means that I'm much more likely to get stopped out before the stock truly moves against me.
- Not being comfortable with the possibility of losing money on a trade. When this happens, I either stop out too early (taking a small loss only to see the stock go against me, having never hit my target) or take profit too quickly at the first sign of resistance. Stocks rarely just go through the roof and not recognizing that pull backs are inevitable, even for stocks going in my direction, is a great way to cultivate FOMO.
- Not stopping once I have a decent profit on the day. I've come to believe that your profit target should be set to be some multiple of your maximum risk on any one trade. If I decide that my max risk ® on one trade is $100, my profit target for the day should be something reasonable like $150 or $200. Once I make $100, I find that my fear of losing those profits often results in placing tighter stops, which makes it more likely that I slowly give back my profits to market choppiness. After recognizing this, I've started switching to sim once I hit > 1 R. While it's below my profit target, I'm happier to slowly grow my account every day than ruin my day with the regret of having given my earnings back to Wall Street.
- Jumping the gun around VWAP. When stocks get near VWAP, they're truly like a tennis ball that clips the top of the net. Instead of gambling and guessing which way it'll go, I've discovered that it's best to accept that you might get a worse entry, and simply wait for a sign of the VWAP being lost in one direction or another before entering a trade. Otherwise, you'll find yourself chopped out.