The worst mistake traders can make.

Summary of a post in The Stock Sage

The worst mistake a trader can make is trading too large.
Trading too much size as a percentage of ones account leads to many of the other pitfalls because it affects the trader’s decision making and causes them to do things that they otherwise wouldn’t do such as:

• Overtrading resulting from stops that are too tight because the position is too large
• Not adhering to stops and/or adding to losers because “they can’t take such a big loss”
• Using confirmation bias and/or indicator abuse to justify remaining in a trade that they would otherwise close out
• Taking profits simply because the trader has a big P&L not because it’s objectively the right decision
• Subjecting oneself to market noise (small price deviations) instead of being able to withstand normal market fluctuations because the position is too large

My Notes: I agree with this analysis. As an example, I am long in July Nifty call Options. I am comfortable with the quantity that I am holding. This has enabled me to ignore the intra day volatility that we have seen recently. If my volumes were larger, I would be looking for stops, exiting at the wrong points, then maybe even taking an opposite position just to cover up.

What do readers say?