Trading has a number of psychological ‘trip up’ points that you need to be aware of. Dealt with properly, you’ll be fine, but let them affect you and they could start a nasty spiral of losses.
Times that I’ve always found tough to deal with are those that involve losses that exist only in my head. Namely – trades that would have made me huge profits if I’d taken them, but that for whatever reason I didn’t. Or the worst one of all – the trade that touches your breakeven stop-loss only to then go on to skyrocket.
The breakeven stop loss is the toughest one of all because you were actually already in the trade and you know that if you’d only just gone and left it you’d be sitting on a tidy profit by now. To me, for whatever perverse reason, I find this almost harder to deal with than I do a loss. Despite the fact that I actually did something sensible (ie limit my risk to zero and effectively give myself a free trade), my typical thought processes following these are as follows:
“I need to get into the market for some action to make up for those pips that I so nearly had…”
and (if the trade that you missed out on was a long one)
“I have to go short because if I go long then I’ll only be making a few pips when I could have made so many more. The only way I can turn this situation around is for my original trade to be wrong and for me to trade against it.
If either of these scenarios sound familiar, then I suspect we’re not the only ones. It’s only now that I can recognize this as being a pitfall for me that I’ve learnt how to deal with it. And my answer is:
Take time out, whether it’s for a few hours, a day, or a few days. Time will heal the psychological pain and allow you to readjust. It’s so important to make sure that trades are made for the correct reasons, and on their own merits, rather for any other retaliatory or emotional reason.
Just remember – you did the right thing by exercising caution. You had no idea that the price was going to stop you out then skyrocket. It could well have done the opposite and dropped like a stone – in which case you’d be patting yourself on the back for avoiding a nasty loss. With trading, it’s natural to pine for what might have been. But tell yourself this – there is no such thing as the perfect trade. There will always be something you could have done better. But as long as you can recognize something that you did right in a trade, irrespective of whether you made pips or not, you’ll be well on your way to becoming a more level-headed, rational, and successful trader.