I’m sure you have noticed that whenever you’re under stress you tend to do and say things that you typically regret later. And if you are a trader, most likely you have experienced that negative emotion of regret… perhaps even more often than you wish…
Research shows that when individuals are shown mildly upsetting pictures, there is less activity in their Prefrontal Cortex. That’s the part of the brain that is responsible for reasoning, self control and planning.
That means that even mild uncontrollable stress can cause a rapid and dramatic loss of those precise cognitive abilities you need the most while in a trading position.
Ok… let me use an easier way to express myself here: When we are under pressure, our tendency is to become dumber 🙁
That may explain why you have often heard the wise trader saying: “let your winners run and cut your losses short”, but you do exactly the opposite. The reason may be that at the time of taking important decisions like where to exit a trade, you’re not precisely the best version of yourself. Hence you end up doing exactly the opposite of what you should do.
In retrospect, it is easy to see what the right decision should have been, but at the time of the trade…
What can you do?
“Know Yourself and You’ll Know The Universe”
This was the inscription on the Greek Temple at Delphi. In our case, we could easily paraphrase it as “Know Yourself And You’ll Be A Better Trader”.
It really matters for you to know what sorts of situations in your trading tend to produce the worst version of yourself, and be prepared to counteract them with clear action steps and strategies.
Eventually, after observing yourself for some time, you will start to notice in yourself the type of behavioral patterns that trigger the defense mechanism that puts you under stress. Once you do, you’ll be able to bring the most sophisticated part of your brain back to your office so it can help you take the most important decisions of the day.
Yes, that’ll be a long term solution.
But what can you do while you’re in a trade, under pressure to take a decision, and at the same time very stressed?
Here is a good tip that I found has helped many of my private clients:
Sometimes it helps to take physical distance from the screen and see your chart from above… I typically tell my students:
“Take a Helicopter ride and tell me what you see!”
It turns out they typically see something completely different.
And you can also take distance from yourself. For example, you could ask yourself, “what would my mentor suggest in this situation?”
You could take distance in time and ask yourself, “what will I have learnt tomorrow about this trade?” That will help you focus on the positive side of the trade, whether you lose it or not, because you’ll be learning something from the experience.
Often this approach will transform the typical bad feeling after a losing trade into a positive learning experience.
Whatever you do, I hope this blog helps you reduce that awful feeling of Regret.