They say that repeating the same thing over and over again, expecting different results is the definition of insanity.

It’s one reason why I’m so careful to record all my trading data, and why I try to learn from my mistakes.

Top 5 worst trading mistakes

Here’s a list of the worst trading mistakes I’ve made over the past trading year (and yes, some of them I’ve repeated!) Let’s hope I can break some of these bad habits in 2012…

1. Exiting positions too early

There are some profits on the table, and the market is retracing. Should I grab what I can now, or hold my nerve, hoping that the market will move higher again? “I’ve got an idea,” says the devil on my shoulder. “Why not sell now, and then buy back at the bottom of this retracement?”

Genius! That way I can make even more money!

Of course, I’m an idiot for thinking it. And even more stupid for acting on it. Inevitably I misjudge the “bottom”, and have doubled my spread costs by opening two trades instead of one.

2. Refusing to walk away from a losing streak

I know that we need to be resilient, and to hold our nerve when we suffer a drawdown, but there’s a difference between resilience and belligerence.

If I’ve suffered four losing trades in a row, in a single day, I can guarantee one thing – I’m not going to be in a good frame of mind for disciplined, impartial trading. Chances are – I’ll be cross.

When this happens, I know that I should turn off my screens and walk away. But sometimes I don’t do this – and that’s when I give back more than I am willing to. My trading will become more and more emotional – and increasingly erratic. I’m not proud of these moments – and hope that I can wipe them out in 2012.

3. Overtrading

Market conditions over the past year have forced many of us to become more and more short-termist in our trades. The longer term trends just haven’t been there, so we’ve moved from our daily charts to hourlies… or from hourlies to 10 minute charts.

And yet, with market volatility, there’s been no shortage of trading signals. Which is why – by the back door – many of us have been trading more than we ought to be.

Short-term trading is exciting, but it’s also emotionally, intellectually and financially demanding.

I need to be mindful of how often I’m trading. And, as new trends emerge in the markets, I should consider moving back into longer term positions, which I know are more suited to my personality, and my profitability.

4. Jumping in and out, instead of scaling in and out

I have an annoying habit of going into my trades all guns blazing. But there is another way, and in 2012, I intend to explore it a lot more.

There’s no shame in testing the water a little with our trades – I really don’t have to jump in at full stakes as soon as I see a signal to trade. Instead, I can open a trade, and then scale into it as it moves in my favour (I’m not talking about scaling into losing positions here). The more confirmation I get of the move – the more I commit to the trade. This takes the sweating out of worrying whether my entry level was perfect and it can help me manage risk.

I can do the same when I’m getting out of a trade.

5. Thinking instead of looking

People often ask me what I think the markets are going to do. I find it flattering that anyone would value my opinion, and sometimes (especially if I’ve had a couple of beers), I’ll pontificate on the subject.

But – in reality – you might as well ask me what I “think” about the Higgs Boson particle. I might have an opinion on the subject – but my opinion doesn’t really matter a damn.

What I should really do is shut up about what I “think” the markets will do, otherwise the run the risk of believe my own hype! I need to keep my head down and concentrate of what the markets are doing – price action is the only certainty, and that’s all we have to trade on.