If you think that experienced traders don’t make rookie mistakes, think again. I remember Stanley Druckenmiller, one of the best global macro traders in history, talking about how he lost billions when he went long the tech stocks in 2000 missing the top of the bubble by an hour or so.
Even though he knew he shouldn’t have done that and told himself many times to refrain from buying, he eventually fell into the emotional trap of the fear of missing out (FOMO). He didn’t learn anything from that mistake, it was just a normal human impulse. The reality is that such emotion driven mistakes do happen, and no one is exempt from them.
Another common mistake experienced traders fall into is market timing. Timing well the market consistently is one of the most difficult things to do.
The market is a big chaotic thing that, especially in the short term, can be noisy and choppy. Jim Rogers, another famous successful global macro investor, is not shy to admit that he’s very bad at timing the market and although his fundamental views often proved right, timing is what made him lose money.
One of his biggest timing mistakes was when there was a massive bull market back in the days and he became bearish. Sure enough, while many where losing lots of money, he tripled his own. He remained bearish and as soon as the market rallied, he went all in short six stocks that he had the most conviction in.
Two months later he was completely wiped out. Was he wrong? Not at all because 2 years later all those six companies went bankrupt. The moral of the story is that you can be right, but if you don’t time the market well and don’t manage your risk properly, you may end up losing anyway.
As you can see from these two examples of incredibly good traders, mistakes will still be a part of your trading career no matter how good you are, or how much knowledge or experience you have. What will make a difference is how fast you will recognize your mistakes and how good you will manage them.
This article was written by Giuseppe Dellamotta.