I have arbitrarily classified trading errors into the following:
- Directional error: Trader in incorrect regarding primary market direction
- Entry error: Trader has entered too early or on the wrong bar
- Stop error: Trader has used stop thats too wide or too narrow
- Execution error: Trader loosened or tightened stop too early or was shaken out.
Directional error: A trader has missed the end of a trend or incorrectly reads a pullback as a reversal. Misreading a trading range as a trend and vice-versa also are part of directional error. A couple of years of trading later, traders get a general sense of where the market is heading and these errors should become rarer. For example, the move to b68 broke the trend and its clear even without a trendline. At this point any with-trend setup such as b69 should be suspect. b69 buy is a directional error.
Entry error: The trader is generally right regarding where the market is headed but enters on improper bars. For example, after two failures to sell in the AM (b3 and b8), there is a good chance the market is headed higher. A trader who buys b12 makes an entry error.
Stop error: The trader is right regarding direction and entry. However, his stop is to tight or too lax. A trader who bought b28 with a 5t stop had a very tight stop and would be stopped out. Overlaps require a larger stop, at least 6t. Inside bars have their theoretical stops below the preceding outside bar. Similarly, a buyer above b6 who keeps his stop below b6 has a stop that's too large.
Execution Error: Entering late (more than 1t beyond bar except due to slippage), getting shaken out on the first pullback (ok to exit on the second pullback), tightening stop before price moves away or gives a first pullback, loosening stop so that the pullback does not hit your stop, exiting when you have a tiny profit are some of the common execution errors. Most execution errors are due to psychological pressure and it often means the risk is too much for you to bear.
A trader often grows by overcoming these errors often in the exact order above. If your sense of direction is generally wrong, you will never be able to swing for many points. You should think of alternative trading styles, such as scalping for a point or two and trying to reach a high level of accuracy. Entry errors are usually caused by taking the first setup, usually a poor setup due to large signal bar or overlap. Your best bet is to restrict yourself to only very clear setup bars or second entries. Stop errors can be largely eliminated using fixed stops of 6t for inside and borderline overlapped bars and 5t for everything else. Execution errors are harder to address. The best way to work on them is to have a fire and forget trading style with fixed stops and targets and only exit by filling an OCO stop/target.