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Trading Education Posted by Team Topstep April 5, 2019

3 Common Trading Mistakes that Can Cost You Big


No two traders operate in the same way. There is no book of rules for trading the right and wrong way in financial markets. However, the odds of trading success improve when you avoid common pitfalls that experienced traders have learned along the way.

Here’s a look at three common mistakes and how to avoid making them.


It’s so easy to buy and sell in today’s world of electronic trading. Once the account is funded and trading permissions are in place, a buy or sell is just a mouse click away. In addition, given the advancements in trading platforms over the years and the fact that commissions have fallen to almost nothing (and actually nothing in some places), there’s never been a better time to be an active trader.

But problems can arise when trades become too frequent. For example, a trader might try to make up for a loss by immediately placing another trade. When that one doesn’t work, they place another trade, and so on. This is sometimes called “revenge” trading and is rarely a good idea. It’s often better to take a break after a loss (maybe a 20-minute walk or a visit to the range to take out your anger on a bucket of golf balls) rather than try to make up for it with more trades.

Another approach that rarely works is to increase the size of the trade in order to make up for a previous loss. This approach is like the Martingale strategy in betting systems: the loser doubles their bet each time because the next win will cover all the previous losing bets.

Obviously, margin requirements make it impossible for most to implement a Martingale strategy in futures market and, even if it were possible, the trader is risking financial ruin if the position grows to large. In short, it makes a lot more sense to increase position size after a winning trade than after a losing one.

No Stopping

Trading without a stop-loss is like driving without a seatbelt – sure, you can do it, but why take the chance? There’s no reason not to place a stop-loss when going long or short.

A Stop Limit will exit a position at a specific price. A Stop Market will exit once a price is hit at the best market price available. Stops are not perfect (prices can go right through a stop price without triggering it) but can certainly help you avoid uncomfortable losses when the market turns the wrong way.

Almost as bad as not using protective stop orders is moving the stop price once it’s in place. Experienced traders tend to use stop losses and, once the stops are in place, are willing to take the loss at that price if it is triggered.

Bad Timing

The popular S&P 500 eMinis (ES) trade almost 24/7, but things tend to quiet down after the US equities market closes at 4:00 ET. In addition, the futures contract doesn’t trade from 5:00 to 6:00 pm.

Therefore, when looking for trading opportunities to ride a trend, but with the goal of being flat at the end of the day, it makes a lot more sense to look for set-ups in the morning rather than, say, 15 to 20 minutes before the market closes.

Nobody Can Guarantee Profitable Trading

Nobody can teach you how to make money trading (and if someone claims to, run the other way!). We can all get better, though, by learning the mechanics of entering orders, reading charts, and risk management. And we can certainly learn from the experience of others.

For more on setting yourself up for success, check out our tips for creating a trading plan.