Monday, June 26, 2017

Regrets and trading

If your trading is not 100% systematic then there is always the danger or possibility of making an irrational, emotion-driven decision which can cause damage to your trading account, as well as issues with your own mindset.

It is very easy for one such decision to eliminate several months of disciplined trading in one go.

If you are looking at your trading as a long-term endeavour (and NOT as a 'get rich quick' scheme) then you don't want to suffer having any trading 'regrets'.

A few examples of these regrets are as follows:  
  • Trading too large a position relative to your equity; 
  • Overriding an exit signal; 
  • 'Revenge trading' after a run of losses; or 
  • Second guessing what a particular market may (or may not) do. 
Think about the 'Dickens pattern', which I talked about here.

Think where you could be if you stick to your own rules over a set time period, and compare it to where you are likely to be if you succumb to one of those trading regrets.

Unfortunately, this is where some market participants really struggle. They don't like being 'constrained' by a set of rules (even though they may have created the rules themselves!), and jump to the conclusion that they can outperform them, or they get bored and want some excitement, or want to quickly make back any lost money from a run of losing trades (which can happen to anyone at anytime).

Those who been able to stay in the game have learned (sometimes the hard way) that discipline is key - particularly when it comes to elements such as position sizing or avoiding making those emotionally-driven decisions.

It is for good reason that many successful traders says that solid trading is boring.

Try and avoid the decisions you will come to regret.

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