The #1 piece of advice I give to new brokers and new traders is “Don’t Spec Errors. “ In other words, if you entered a position due to an execution error, just close the position and move on. Do not treat the error as a speculative trade. As a broker and a trader, I’ve placed many orders over the years. Every now and then you make a mistake. Here are a few examples of the most common error trades:
- Buying a market you intended to sell
- Getting the lot size incorrect (you buy too many contracts!)
- Trading in the wrong month (sold June ES instead of March ES)
- Trading the wrong market (bought Wheat instead of Corn)
These are not the only mistakes one may make, but they are the most common. When I make a mistake, I immediately get out. I don’t trade it. If I am down a few ticks or a point, I don’t try to get out at break even, I just get out. One thing I tell new brokers is “a one tick error is your best friend.” Too many times I have seen traders trying to play markets they never intended to get into only to suffer a loss and lose lose valuable trading (and mental) capital.
When you find yourself in an error trade, you are in a trade that you have no plan or preparation for. If you choose to stick with it and trade it, you are flying by the seat of your pants. Sometimes traders will spec the error and it works out. The problem is what happens when the markets continue to go against you and don’t come back. I’ve seen it happen. Before you know it you are down hundreds, if not thousands of dollars, on a trade you never intended to take, all because you just couldn’t take a small loss from the onset. Those big losses can kill trading accounts. My take, and it’s why even let it happen? If you find yourself in an error trade, take a small loss and move on. It’s just not worth risking your entire account on a trade you never intended to take.
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Turner’s Take was created to give traders and investors a window into the elusive world of LaSalle and Wall Street. My experiences at the NYSE, Goldman Sachs, NYU Stern and Daniels Trading have produced invaluable knowledge and contacts in our most vital capital markets. This wealth of experience and insight has proven to be a critical educational and investment vehicle for my clients and subscribers.
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