Prepare yourself. At some point in your trading career, it's going to happen. You're going to make a mistake when placing an order. You're going to place an order to buy a spread when you intended to sell one, or vice versa. You may buy ten butterflies when you meant to buy one. Even worse, you may place a limit order and get a decimal wrong.

What do you do when the alert rings and you're happy, thinking that you've been filled on your working order? You check the confirmation and have your stomach sink to your toes when you realize what you've done. You have made a mistake. Yikes! You take a few deep breaths. You confess to someone who will help you talk it through, a trading partner or chat group. You tell yourself what I would tell you: you're human. Unless you're different than any other human I have ever known, you're going to make mistakes. Depending on your personality, your reaction to the unexpected shock and your experience level, it might not be a great idea to immediately try to undo the trade before you give yourself a few seconds or minutes.

Mistakes such as these fall into two categories: those you can undo without much harm and those you can't. Imagine that your plan one day was that GOOG was going to climb after testing support on a five-minute chart. GOOG tests that support and then prints a couple of small-bodied candles right at support, halting its decline. It's time to move and take part in the expected short-term rise, according to your plan, to purchase ATM calls. Only, you put in an order to buy five GOOG ATM puts when you meant to buy 5 GOOG ATM calls. You are horrified when the order immediately fills.

However, you see that while testing support, GOOG has slipped just a little lower. Your mistake is actually making money! Whew!

Your heart is pounding, but you think you'll hold onto those money makers!

Halt right there.

  • Think about your original plan.
  • Take a breath.
  • Feel the gratitude as you place the order to sell-to-close the puts you never meant to buy.
  • Then step away from the computer and reassess.

You were just gifted with a get-away-free pass on your mistake, but it was a mistake since it violated the premise under which you had entered the trade, and NOT part of your plan.

It's always helpful to learn from your mistakes, because then your mistakes seem worthwhile.” Garry Marshall

What if, before you could do anything, GOOG took off higher, just as you thought it was going to do when you set up your trading scenario? Now you're stuck with those puts that are rapidly losing money. Again, you are human, you made a mistake, but you had a trading plan that you need to revisit. You need to exit, but you need to do so in a calm manner so that you do not make further mistakes. Believe me, I've known traders who get so rattled that they complicate their first error by making a second one. Get up from your trading desk if you're so rattled that your palms are sweating. Take a deep breath.

Wonder Woman Image

Lynda Carter poses as Wonder Woman (Image courtesy of ABC TV and Amazon Archives)

Adopt a power pose for one or two minutes: spread your arms in a victory salute or stand with arms akimbo as if you're Superman or Wonder Woman. Don't laugh at the idea, it works. Research has shown that such a stance lowers your cortisol or stress levels.

The results of a research study by the Association of Psychological Science indicated that such power poses decreased cortisol levels by 25% (reducing anxiety). At the same time, these poses increased testosterone levels by 20% (boosting confidence).

Power Pose chart

So what is the next step?

Now, plan your exit from those puts you bought by mistake. Refer back to your original plan, which you outlined when you were calmer. Did that plan envision GOOG breaking out of a key level and racing higher? Did the plan include the idea of a day when GOOG climbs leisurely along a key moving average, periodically pulling back to retest that average? My advice would be to exit as soon as you're calm enough to place the trade without making another error, compounding your first mistake. However, if your scenario and the underlying's price pattern fit a scenario of a calm move back and forth that would allow you to exit with less pain on an expected small pullback, you might make the choice to wait a few minutes to determine whether that scenario is unfolding.

However, remember again that you are human and you can't predict what will happen. For me, I prefer to take my lumps right away.

“Success seems to be connected with action. Successful people keep moving. They make mistakes, but they don't quit.” Conrad Hilton.

We all accept that the trading business is going to include some losing trades. It's harder to accept that some of those losses may be because we placed a fat-fingered trade, didn't pay enough attention, or bought when we meant to sell. However, unless you're different than any other trader I've ever known, that is absolutely going to happen.   It's all about how you accept these mistakes and move forward to get back on track with your trade plan.

Have you had an experience making a mistake? Did you reverse your mistake right away?  Or, did you wait until you regained your composure?  Feel free to comment below.