Where are you making mistakes despite reading the market correctly?

We continue with the second article of our series on the mistakes and thought patterns that many people, including myself, observe when trading.

Whether you win consecutively or lose, you must adhere to your principles and rules: Almost everyone who gets caught up in a winning streak with consecutive profitable trades begins to feel "successful," releasing high levels of dopamine, experiencing a surge of confidence, and thinking they have figured out the market like a market maker. In parallel, they start to forget their principles and rules. Since the majority of individuals are already making a lot of money and increasing their capital, they may think that the risk they can take also increases, leading them to open more trades, even sometimes entering places they wouldn't normally, expanding their risk range, and starting to take positions with higher amounts.

Try taking a break

Similarly, when consecutive losses occur, some individuals may engage in unnecessary risks and almost gamble, thinking that it doesn't matter if their remaining money is lost since they have already suffered significant losses. On the other hand, some may become overwhelmed with fear and anxiety due to their losses, avoiding transactions, resorting to negative generalizations, thinking they will never succeed again, and becoming inclined to give up. In both behavioral patterns, the appropriate action to take after consecutive wins or losses is to take a break. At this point, some individuals turn to various activities to distract themselves, such as running, swimming, walking, etc., while others try to evaluate their past transactions or improve their financial literacy. Additionally, I recommend that you do not forget to realize a portion of your profits after consecutive profitable transactions. This way, you will reduce your risk appetite and reinforce your perception that the money in your transactions is 'real.' You can take a look at my article titled 'How should risk management be done in crypto?' that I wrote in the past on this subject.

I find it more appropriate to take a break from watching the markets and dedicate some time to myself during the times I win in a row. If we call ourselves "traders", we need to realize that opportunities in the markets never run out, especially in the crypto markets where we need to be active 24/7, and that taking breaks to continue this is not going to lead us to any losses, as it is impossible to be active all the time.

Is there a need for revenge trade?

For example, when I make plans with my friends or go on vacation, I prefer not to take any trades. In series where I win or lose consecutively, I take a little break; if I receive a notification from a trade I set an alarm for, I quickly check it and join the trade if it seems appropriate. However, I should emphasize that during times when I lose consecutively, I also reduce the amount I enter into the trades. Since consecutive losses affect my mood more, at this point I try to frame my trading skills with representative figures like (5-10 dollars and ). On the other hand, one of the biggest mistakes many traders make is trying to recover their lost money by increasing the amount they enter into trades, turning it into a "revenge trade." Instead, being cautious, facing your losses, normalizing the situation, and accepting it would be a much healthier approach.

Falling into the sunk cost fallacy

You should not trade without determining the stop-loss ( level: When I first started trading, I generally thought that the levels I entered were good and didn't feel the need to set a stop. Until I was caught in a losing position, this had never been a problem. However, in a losing trade where I had opened with ) isolated margin, I started to lower my liquidation levels by adding more positions. Each time I thought, "it will turn back from here," I continued to add positions, and after a while, I fell into the "sunk cost fallacy." After carrying the trade for a while, I managed to close it with a small loss during the retest, but that three-day process was very exhausting and stressful for me.

If you haven't set a stop, it means you are gambling.

When I talked about this situation with sinanenginnft, whom I trust for his knowledge and experience, he said, "a position where you can't choose your stop is not a position" and added, "if you haven't determined a stop in a position and you're trading like that, you're not trading; you're gambling." I learned the importance of setting a stop through experience, and perhaps you will need to learn in the same way, but it should not be forgotten that if you engage in a trade without a stop, you not only violate all your rules and principles, but you can also ruin your risk management, be forced to unnecessarily move your position by making emotional decisions, and strain your psychology. I had closed that trade with a small loss, but by adding to it seven times, I had risked eight positions worth of my money in a single position, and the price was approaching my liquidation level each time. I am not sure if I would have been able to trade again if I had lost all my money. :(

Since I have made it a habit to use stops in my trades, I have started to feel more relaxed and comfortable. I no longer take trades where I cannot determine my stop level or where I think the stop level I have set does not make much sense. As I mentioned in the previous article, technical analysis gives us the power to have a game plan, but we can never be completely sure whether our strategy will work or not, therefore, setting a stop will serve as a buffer to stop the bleeding at this point.

What if it returns from here?

Being able to carry a position in profit is as much a skill as stopping a losing trade: In my opinion, one of the hardest skills in trading is the ability to carry a position in profit. I can say that one of the most common topics I encounter in my own trading history, in the people I mentor, and in social media posts is this. While the trade progresses profitably, many people end their positions early due to the fear of "What if it reverses from here?".

The Importance of Gradual Profit Taking

If we question the reasons for this, we can first mention the lack of any plan or strategy regarding the transaction taken, or the uncertainty about the existing plan and strategy. Individuals experience feelings of uncertainty, leading them to stress and anxiety, and they close the transaction to feel secure. Secondly, the comments of other individuals on social media regarding price movements, along with the news provided by market makers, can distort a person's existing perception, causing them to lose confidence in themselves and their plan, leading to a erosion of trust. Thirdly, there is a fear of losing existing gains. Instead of completely losing their gains due to a sudden reversal or a change in the market, they exhibit behavior suggesting that "being content with less" is more rational. Finally, the profitable progression of a transaction leads individuals to release dopamine and feel a sense of "I succeeded." The person who does not want to lose these intense feelings and satisfaction finds it more appropriate to close the position.

Just like closing early, not closing the trade due to greed when the price reaches the target area is also fed by similar tendencies. In order to prevent such behavior patterns, it is crucial to determine all levels from the very beginning, such as ) buy, sell, stop loss like (, and to stick to the plan. You should consider that you will not evaluate the levels you set in a similar way when you are in a state of victory intoxication. Still, if you are afraid of losing your profits or think that the market will continue to move in your desired direction, you may prefer to take profits gradually.

This article does not contain investment advice or recommendations. Every investment and trading activity involves risk, and readers should conduct their own research when making decisions.