If you think that experienced
traders don’t make mistakes, think again. I remember Stanley Druckenmiller, one
of the best (if not 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 basically impossible. The market is a big chaotic thing that, especially
in the short term, can be noisy and very volatile.
Jim Rogers, another
famous global macro trader who co-founded with George Soros the Quantum Fund,
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.
He once 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. Unfortunately in trading, being right but being early eventually
ends up in being wrong.
Mistakes will be
part of your trading career no matter how good you are or how much knowledge and
experience you have. What will make the difference is how fast you will
recognize your mistakes and how well you will manage them.