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Common Trader Mistakes According to Psychology Expert

The following article comprehensively explores the common mistakes made by traders according to Dr. Brett N. Steenbarger, Ph.D., a psychology expert who has authored numerous books on trading psychology. Dr. Brett N. Steenbarger, Ph.D., is an active trader and a professor in Behavioral Sciences at SUNY Upstate Medical University. He also serves as a columnist for MSN Money, Stocks Futures and Options Magazine, and Greatspeculations.com. One of his well-known books is 'The Psychology of Trading' (Wiley, 2002).

Here are Dr. Brett N. Steenbarger's observations on common mistakes made by traders:

  1. Lack of a Valid Trading System Many traders seek consultation believing their issues are psychological, such as lack of discipline or patience. However, upon closer examination, their primary problem often lies in not having a valid trading system. Without a clear and tested system, traders will always be hesitant and anxious during trading. Dr. Steenbarger reveals that this doubt arises because traders are unsure of what they are doing. Most of them have not backtested their methods or trading strategies. Without knowing the reliability of their trading system based on historical data, they cannot expect it to perform well during real-time price movements.

  2. Switching Methods or Analytical Approaches Too Often The second common mistake traders make is frequently switching methods or analytical approaches before fully understanding their application in current market conditions. Dr. Steenbarger advises traders to maintain a trading journal to identify the methods that best suit them. Switching methods too often only undermines trader confidence and increases tension. The goal of trading is to achieve profit in the short term, but a "one-size-fits-all" approach cannot be applied. Traders should be patient and consistent with their chosen and tested methods.

  3. Negative Thinking After Experiencing Losses After experiencing losses, many traders tend to think negatively about trading. They often dwell on past losses and become fearful of future losses. This fear perpetuates negative thoughts about trading. Dr. Steenbarger suggests that traders take a break and refrain from trading until they can accept that losses are part of the game. Self-motivation is crucial in overcoming these negative thoughts. Dr. Steenbarger has conducted counseling and therapy for an average of 130 clients per year over 15 years using self-motivational techniques.

Dr. Brett N. Steenbarger identifies three major mistakes commonly made by traders:

  1. Not having a valid trading system.
  2. Switching methods or analytical approaches too often.
  3. Thinking negatively after experiencing losses.

To prevent these mistakes, start by learning to develop a reliable trading system and consistently use it. Traders who can address these issues and improve their approach to trading will have a better chance of success and consistent profitability. Trading mistakes are often not purely psychological but also stem from a lack of a valid trading system and consistency in the methods used. Traders should focus on developing tested systems and learning to manage their emotions to achieve long-term success. By following Dr. Brett N. Steenbarger's advice, traders can enhance their skills and reduce unnecessary risk of losses.


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