The Best Ways To Stop Missing Winning Trades Your own reasoning kept you from entering
Ever wanted to slap yourself for passing on a trade and then regretting it later?
Have you ever made a terrific deal and prematurely closed it out because you lacked confidence or overanalyzed the situation? The transaction later turned out to be a massive winner.
How frequently do you encounter such circumstances?
However, if you find yourself constantly frustrated and regretting your trading selections, you need to take action. In all honesty, these circumstances are sometimes inevitable.
What if there was a technique to lessen these emotional suffering brought on by trading mistakes?
What if you could start participating in these significant deals that you had previously talked yourself out of? What if I could help you recover from this mental illness and liberate you once and for all?
I may have both good and terrible news (depending on how you look at it).
The good news is that by understanding what is causing these issues, this article will hopefully give you the confidence you need to fix the problem and start closing some of the trades you've been letting slip through the cracks.
Discover the true meaning of recency bias and learn how to avoid it.
Humans often make judgments about the future by considering the past, and this is understandable because it may assist us avoid again making the same mistakes. Although this evolutionary drive has helped us advance throughout the ages, it tends to work against us when it comes to trade. When we learn from the past, we describe ourselves as "optimists," and in most cases, it is a really optimistic thing to do. However, in trading, where there are so many unpredictable outcomes, this may rapidly turn us into "pessimists."
I'll give you an illustration to help.
We frequently assume that recent past events will have an influence on what is likely to occur in the present, and in MOST cases, this is accurate. But for every trading edge, there is a random distribution of winners and losers. This implies that even if your edge is, say, 80% lucrative over time, you can never be certain which trade will succeed and which will fail.
A trader could take one of the losing trades in that series and get mentally "shaken out," which means they freeze like a deer in headlights and skip the next perfectly good signal due to recency bias in trading, even in a very small sample size of 3 winning signals and 2 losing signals on a random section of a chart. In other words, they are unduly affected by the results of previous or recent trades while, in fact, those results have little to no bearing on the performance of subsequent trades.
An illustration of recency bias in action:
Let's now examine a current case study to see how recency bias might hurt your trading:
The first two indications on the chart below marked as "winning pin bars" would have been taken if your main trading edge was pin bars on the daily chart time frame. One of my favorite kinds of pin bars were these long-tailed ones. You could have made money off of both of those, or at the very least, you could have exited at a profit.
Things start to become a little more intriguing now...
Then, it becomes clear that two consecutive pin bars failed. Therefore, there was a VERY small possibility that you would have taken the last pin bar to the right on the chart, which has turned out to work rather well as of this writing, if you had chosen these two pin bars instead of letting recency bias "grab you." This demonstrates why, despite previous trade failures or results that you didn't like, you should keep placing trades that satisfy the requirements of your trading strategy. Since neither you nor I have the ability to see into the future, trying to "guess" the result of your next transaction based solely on the results of the last is foolish in addition to being fruitless.
To be completely honest with you, when the two "losing" pin bars that you can see in the chart above developed, we mentioned them in our daily members newsletter. They failed, as deals occasionally do. However, we also advised investors to think about purchasing the most recent pin bar buy signal on the chart's far right, which you can see is performing admirably DESPITE the preceding two pin bars failing to perform. This is what we refer to as TRADING WITH DISCIPLINE, my friends. If you had given in to recency bias, you would have abstained out of fear of suffering another defeat. Then, when the last pin bar worked out without you on board, you would have been filled with sorrow.
Once more, the idea I'm hammering home is to maintain your advantage by believing in it. You must be aware that each trade's result is somewhat arbitrary and that, as was already indicated, winners and losers are dispersed at random on the chart. However, as we can see with this recent example on GBPUSD, when you see these signals, they very often lead to huge moves, and we have to try to be on board a significant portion of them for our winners to outperform our losers. That doesn't mean we will be taking every trade because we will filter our signals using the TLS confluence filtering model that I teach my students.
Do not allow your mental health be harmed by loss anxiety.
One of the strongest motivators for passing up on perfectly decent transactions is the fear of losing and of losing again. I won't dispute that taking a trade after a losing run is challenging, but you need to reach a point when it isn't. It's foolish to keep assuming you will keep losing merely because the past transaction was a loss, as we indicated before.
You must regard each trade as a separate event and as a singular experience because that is precisely what it is if you want to avoid or overcome this phobia. You must be very careful not to put too much money at danger by overcommitting to any one deal. To constantly feel confident and upbeat and to know that you may lose a trade or several in a row and keep going, you need to preserve your bankroll (trading money). Keep in mind that your trading money serves as the equivalent of "oxygen" in the market, so make sure you always have enough to maintain a healthy breathing pattern.
Many traders frequently link unfavorable incidents or occurrences from their personal life to their trading.
Our trade or finances may be affected by these "negative things" in our personal lives (think about the addicted gambler losing all his money at the casino).
Just be aware that you must be able to "compartmentalize" your personal life and any unpleasant aspects of it from your trading. This may get psychologically rather hard.
That is what it implies if it necessitates refraining from trading for a week or two until a bad experience no longer affects you.
However, you must at all means safeguard your trading philosophy and capital.
Take care not to let overconfidence turn into insecurity
We set out enthusiastic and motivated, study a few books, watch a few videos, complete a course, and then we venture out and gamble a significant portion of our hard-earned money. This may ruin even a fantastic trader who is just starting out. Some of the finest traders fail because they just didn't wait their time and respect the market and the process. Financially and psychologically, they might be crippled for the following ten years by one severe blow.
Even the most brilliant and intelligent traders can become psychologically incapacitated by a single run of losing deals.
At the start of your profession and all along the way, you must employ your common sense. Sure, have confidence, but guard your money first, keep to your daily routine and chart-reading schedule, toil away week after week after week, and commit. Develop your craft by practicing it. Make yourself one with the charts.
Become more intuitive and gut-oriented
Broken traders lack gut instinct and intuition and no longer have faith in themselves. We need to get you back on the saddle and reactivate your sixth sense (gut feeling for trading). Jesse Livermore frequently discussed "feeling the market" and "knowing what was going to happen by a hunch or feeling" in his book Reminiscences of a Stock Operator. To quote him:
A man must believe in himself and his judgment if he expects to make a living at this game. That’s why I don’t believe in tips. – Jesse Livermore
Your gut instinct and intuition will grow if you recognize and address the three problems we covered previously, much as an athlete's stamina. Once this has occurred, you will immediately "paint" a mental picture of the future from the bars on the chart to the right when it comes time to take a trade, and your gut feeling intuition will help you increase your confidence to join the trade. This begins with learning to interpret the imprint of the market left behind by price movement or price action for price action traders like you and me.
Create a list of daily trading mantras that you read to yourself to help you improve your gut trading feel or intuition. Some examples include the following:
I have faith in both my talent and trading edge.
I'll adhere to my screening guidelines and execute legitimate deals.
I won't use my filtering criteria as an excuse to avoid firing the shot.
I believe in my instincts and intuition.
I won't second-guess this next transaction.
The result of my previous deal is irrelevant to my current trade, thus I don't care about it.
Recognize that the statistics are accurate.
Because they don't believe or comprehend the real facts and statistics of trading, traders frequently miss profitable deals because they just think themselves out of them. I'll explain.
There IS a random distribution of wins and losses for every given trading advantage, as I briefly mentioned before in this course. This means that even when your trading edge has an XYZ win %, you will never be able to predict "for sure" which transaction will be a winner and which will be a loser. Three things follow from this trading fact:
You have no way of knowing if the next setup will win or lose, no matter "how wonderful" it appears to be, thus there is no use in drastically altering your risk between trades.
Trading losses are inevitable; all you can do is figure out how to lose well. When traders try to "filter" out losers or any other equally absurd thought in an effort to prevent losses, they put themselves in danger of blowing out their trading account since they are now attempting to forecast the unexpected, which results in a whole host of additional trading errors.
In the great scope of your trading career, each one deal is merely inconsequential, or AT LEAST IT SHOULD BE. You are setting yourself up for certain "death" in the trading world if you give any one deal an excessive amount of significance by betting too much money on it and developing an excessive emotional attachment to it.
Conclusion
Trading is absolutely not about never making a mistake or never losing a trade. You do, however, need to make some modifications if you discover that you consistently miss trades and feel sorrow about your trading.
As traders, we are our own worst "enemy" and "competitor" in the market.
Your ability to start generating money in the market will depend on how quickly you come to that realization, embrace it, and take action.
Today's session identified the problem and provided many remedies for one area of trading that frequently leads to traders "shooting themselves in the foot"—missing out on profitable transactions.
To the point where you are giving yourself the best opportunity at succeeding in the market, it is your goal as a trader to completely overcome and get rid of all of the many self-defeating tendencies that every trader must overcome. By following me and learning from me, I hope you can ultimately get out of your own way and be able to take advantage of the potent price changes the market occasionally throws up. This is what I always aim to educate students through my professional trading classes.
Please share your thoughts on this lesson in the comments section below.
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