Breaking the Rules
Sticking to your trading rules is paramount for success in the market. Yet, it’s all too easy for traders to stray from their established guidelines, especially when tempted by the prospect of greater profits. However, yielding to this temptation can have dire consequences.
Consider this scenario: you break your rules and, by chance, score a profit on that trade. It might feel like a triumph at first, but this success can be misleading and ultimately detrimental. It can foster a false sense of confidence, leading you to believe that rules can be bent or ignored in the future.
I’ve witnessed this pattern unfold with numerous traders. They relax their rules in pursuit of higher gains, only to find themselves taking on excessive risks and suffering significant losses in the end. What’s worse, if breaking the rules leads to immediate profits, it reinforces the belief that rule-breaking is acceptable.
Take, for example, a trader I knew who decided to disregard his rules, convinced he was missing out on lucrative opportunities. Initially, he enjoyed a surge in profits, averaging 20,000 a day instead of his usual 5000-10,000. However, this success proved short-lived. Within a month, he had squandered all his previous gains and his overall performance for the year took a substantial hit.
It’s crucial to resist the allure of deviating from your rules, even if it seems like a minor transgression. Profiting from a rule-breaking trade can ultimately be the most expensive gain you make, as it reinforces detrimental habits. Consistently adhering to your rules is the bedrock of successful trading.
Remember, giving in to the temptation to break your rules once sets a dangerous precedent. It’s a slippery slope that can quickly lead to losses and disappointment. Don’t fall into the trap that ensnares so many traders. Stay disciplined, stick to your rules, and avoid the allure of “just this one time.”
Revenge trading
Revenge trading stems from a fundamental misunderstanding of responsibility in trading. When faced with losses, it’s natural to feel frustration and seek someone or something to blame. However, in reality, the only person responsible for your trading outcomes is yourself.
Blaming the market for losses is counterproductive because it diverts attention from personal accountability. Seeking revenge against the market is essentially seeking revenge against oneself. This self-destructive behavior only leads to further losses and trading mistakes driven by emotions like anger and frustration.
The temptation for revenge arises from the misconception that trading losses are caused by external factors, similar to losing bets in gambling. In gambling, you can only lose what you choose to bet. However, trading differs significantly because losses can exceed planned limits due to factors like slippage, leading traders to blame the market for their losses.
Consider this scenario: after losing 300 points in a trade, a trader may feel that a 100-point profit in the next trade isn’t sufficient to recoup their losses. However, each trade is independent of the previous one, and the market doesn’t consider past losses when presenting new opportunities. Attempting to recover losses from one trade in the next is illogical and counterproductive.
Mark Douglas emphasizes that the market can’t take away anything you don’t allow. Seeking revenge creates an adversarial relationship with oneself, hindering the ability to accept current trading opportunities and perpetuating a cycle of self-punishment for past mistakes.
Ultimately, trying to take revenge on the market is futile and only serves to harm oneself. It’s crucial to accept responsibility for trading outcomes, learn from mistakes, and approach the market with a mindset focused on adaptation and growth rather than retribution.