Have you ever read "Reminiscences of a Stock Operator"? Livermore, who only attended elementary school, became a legendary stock market genius through his innate understanding of the trading market.

The book mentions that the essence of the entire financial market is actually a game between people. Where there are people, there is human nature, and human nature will never change.

Why was Livermore successful? Because he was always at odds with himself, constantly overcoming his own human weaknesses. He did not indulge his desires like a normal person would.

Therefore, in trading, once you can restrain your desires and regulate your trading habits, you will definitely be the one who can enjoy the profits in the 20/80 market.

Today's article will discuss the trading mistakes I used to make frequently and how I changed my trading habits. These are all methods that I have verified and proven to be effective, and I hope they can inspire you.

1. Common Mistakes and Habits

(1) Impatience, unable to wait for opportunities

A: Never let the account be idle

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As soon as the account is not trading and is in a cash position, it feels like I've lost hundreds of millions, as if the market is full of opportunities and I want to seize all the profits.

B: Never let myself be idleWhen there are orders, one looks at the market trends; when there are no orders, one still examines the market for trading opportunities. Whenever there is a spare moment, one must take out their phone to check the trading software, to see whether they have lost or made a profit.

In 1906, Livermore also experienced a significant bankruptcy. At that time, the stock market was extremely hot, but he believed that the economic environment was very poor, and the market was experiencing a money shortage, which could not support the bull market to continue. So he heavily shorted the stock market.

His prediction was not wrong, but he went bankrupt. The reason was that he was one step ahead of the market; he did not wait for the best turning point and was overwhelmed by a wave in the trend's tide.

Many people can predict the right direction, but what is difficult is to take action at the right time and put the money in their pocket. Only by patiently waiting for the market trend to come to your side can one go with the flow and truly make money.

(2) Poor execution

A: Opening positions

One has already made a trading plan, feeling that they should follow the trend and break through positions. The market falls to a key level, and they catch a "falling knife" to grab a rebound; they are clearly trading gold and crude oil, but when they see an opportunity in stock index futures, they lightly engage with a small position.

On the contrary, when it comes to the position-opening level they have set for themselves, they either miss it or cannot bring themselves to do it.

B: Stop-loss

Before the order enters the market, a trading plan has been made, and the stop-loss point has been accurately determined. They have even placed the stop-loss order, but when the market moves against them and is really about to trigger the stop-loss, they cancel the stop-loss order, not wanting to cut their losses and letting the losing order drift.Why does this happen? Mainly due to a mentality of luck and the randomness of the market.

For instance, "catching falling knives" is often correct and can make a small profit, as the market can rebound slightly and then be closed. When I first started trading, I often did this, finding a key level to enter, and then making a hundred or so dollars when the market retraced.

Back then, we often joked: "Catch a long, earn enough for tonight's barbecue."

This is far from talking about any profit-to-loss ratio; even if you're right many times, it's not enough to cover the loss from one mistake. "Catching a falling knife" can lose half a year's worth of barbecue money in one go, thinking back, we were so naive.

Let's talk about stop-losses, which is the most terrifying mentality of luck, because in the vast majority of trending markets, there are retracements, and many orders can return to the entry price without a stop-loss, or even make a profit.

Therefore, even though everyone knows that not having a stop-loss can lead to a blown account, the mentality of luck causes many people to not strictly enforce stop-losses in practice, which is also the reason why many people blow their accounts.

(3) Not knowing how to learn, only knowing how to trade head down

I won't reiterate the content that needs to be learned here. I've written over a hundred articles before, about all aspects of trading learning, all of which are placed in my public account: Eight-Digit Garden. Those who need it can go and check it out themselves.

2. How to Establish Good Trading Habits

(1) Cultivate the Correct Trading PhilosophyA: Trading is not like bricklaying, where the more you carry, the more you earn.

We all know that trading is speculation. We can understand speculation as investment plus opportunity. Since it's an opportunity, it certainly won't be available all the time. For intraday trading, it might be three to five times a day; for medium-term trading, it could be two or three times a week; for long-term trading, it might be once or twice a month.

Less is more, more is confusion.

B: Do not pursue perfection; having wins and losses is the norm in trading.

I used to be ridiculous; I always wanted to catch all the market movements. Using a small moving average to exit would often miss big trends, but using a large moving average would result in losses during volatile markets. What should I do?

I can tell everyone very clearly, there is no solution. This is the reality of trading. You either use a small moving average to exit and make money from small trends, or you use a large moving average to exit and make money from big trends. Do you want to make money from all kinds of trends? But I'm sorry, the Earth does not revolve around us.

To let go is to gain.

(2) Cultivating good trading habits, specifically doing 4 things

Before I talk about these 4 things, let me first mention a general principle: in our trading, we should pursue long-term and stable profits, not short-term windfalls, because short-term windfalls inevitably lead to huge losses.

We need to have a long-term perspective; the development and advancement of things have a process of evolution: cultivating good habits → making correct trades → ultimately achieving trading profits. These three steps are interrelated, advancing step by step, so everyone should not be eager for quick success and instant benefit.First thing: Consistently keep a record of mistakes

Let me share my personal experience. I used to make profit-taking and stop-loss decisions purely based on feelings, and the end result was small gains and big losses. Moreover, my mental radar automatically blocked out the fact that "I lost money," and I always thought I won more and lost less, feeling pretty good about myself.

Later, I started to record every trade I made, including profits and losses, and the specific trading thoughts. Every day, I would reflect on why I did what I did and where I went wrong.

For a period of time, I realized that I could make the same mistake 8 times, which led to losses of hundreds of thousands of dollars. That's when I realized the seriousness of the situation.

So, I went in order of the mistakes recorded to forcibly correct my habits. For example, the habit of not setting a stop-loss, I would set it and resolutely not change it. When the market was bad and I was losing, I would do something else to relieve my emotions, and after a few days, the market would improve, and I would make my money back. After going through this back and forth many times, I no longer had a strong emotional response to temporary losses.

Before, when I didn't set a stop-loss, getting stuck in a position would mess up my mindset, and a messed-up mindset would lead to reckless trading, which in turn led to big losses.

Compare this to when I strictly implemented stop-losses; the situation was not as bad. From that time on, I had an epiphany that stop-losses are not to be feared.

Second thing: Set phased goals

Going against your nature and changing your habits is a difficult task. You might make many mistakes, such as being inconsistent with your positions, not being patient enough, liking to add to positions when there are floating profits, or managing your capital in a complete mess.

If you were to correct all your bad habits at once, you might fall into endless pain and self-doubt. If you list the mistakes you've made and set phased goals, such as not making mistakes with your positions this month, and not making mistakes with adding to positions next month.In behavioral psychology, there is a 21-day effect, which suggests that after maintaining a good habit for 21 days, one can develop habitual actions and thoughts that will become deeply ingrained. If the overall task seems daunting, we can break it down into phased goals and correct and cultivate them one by one. It took me about two years to correct my trading flaws and achieve stable profitability.

The third thing: Reduce your position size.

Let me illustrate with an example: for a $10,000 account, holding 1 lot with a stop loss of 30 pips results in a loss of $300 if wrong; whereas, holding 5 lots with a stop loss of 30 pips results in a loss of $1,500 if wrong.

The difference between $300 and $1,500 is not just a matter of amount; with a $300 stop loss, the psychological pressure is lower, allowing for the entry of orders with stop and profit targets set, and even the freedom to let the market play out without constantly monitoring it.

On the contrary, with a $1,500 loss, the psychological pressure is high, leading to an urge to constantly watch the market, which increases the likelihood of making mistakes.

Reducing position size reduces psychological pressure and is particularly helpful in developing good trading habits. Many students have also given me feedback that after reducing their position size, their trading mentality has stabilized, and they have been consistently profitable.

The fourth thing: Simplify your trading system.

Many people have always been fond of pursuing "high-end" trading systems, "magic" indicators, or things that make them feel "impressive" when mentioned.

In reality, there is no need for this; the sole purpose of our trading is to make money, not to show off.For example, if your trading system requires adjusting positions based on changes in candlestick patterns and adjusting stop-loss points according to the profit space, these complex operations are not inherently wrong. However, if a trader has poor trading habits, such complex operations can be the last straw, making execution particularly difficult and introducing more variables. If the execution is not in place, what's the point of an advanced trading system?

I hope everyone can understand this principle.

The most ideal state is to open a position, set the profit target and stop-loss, and then not have to watch the market. Let the market run its course, regardless of whether the outcome is right or wrong; this is the probability distribution of the trading system. As long as the overall result of periodic trading is profitable, that's acceptable.

3. Summary

There is no "magic code" in this world that leads to the path of profit. It must be that someone has overcome more difficulties on the way than you, which allows them to walk ahead of you and climb to the top of the mountain.

Let's not demonize trading. If we change and correct one thing at a time, achieving stable profits is not a difficult task.