The Mistakes Traders Make

Editor's Note: This column is a special bonus for TheStreet.com readers. This piece originally appeared on RealMoney Oct. 24. To sign up for RealMoney, where you can see Alan Farley's commentary regularly, please click here for a free trial.

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Swing traders do the wrong thing every single day. But we can't go crazy about it, because mistakes go with the territory.

Trading requires quick decision-making, and there may be little time to consider the consequences of our actions. In fact, the most urgent task of risk-management is to save us from ourselves when we screw up. And it never ends.

New traders believe they'll wake up one morning and stop making dumb errors. But that won't happen, because we're talking about cold, hard cash. It's the kind of green that will blind us right up to our last dying days. The best we can do is learn to coexist with our mistakes. Then, if we recognize them quickly, we can head for safety and minimize the fallout.

Here are 10 ways we screw up every single day. It's a good place to start your self-examination.

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1. Last to the Party: You sit on your hands watching a big move. You want in, but you're too scared to act. Finally the fear of missing out overcomes your better judgment, and you jump in. The move ends immediately, and you're stuck holding the bag. You never have enough information to act. Look at the technicals, trust your instincts, and pull the darn trigger before it's too late.

2. Marginitis: You have a small account but want to be a big player. So you overtrade your margin and get into a heap of trouble. Remember that every position has a right size. Never trade over that amount, and forget about using margin until you know what to do with it.

3. Listening to Farley: I get nasty emails anytime I recommend a stock that goes the other way. Guess what, you shot yourself in the foot, because you let someone else tell you what to buy or sell. Make your own decisions, and take responsibility for your own actions. Anything else is a cop-out.

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