Lets discuss the last 3 days price action in Nifty.
Nifty closed below 8577 on Friday, You went short hoping to make a 100 points. Monday market continue to trade below 8577 but suddenly reversal come and it start trading above 8577. You have decided if it close above 8577 for 1 hour i will close the trade. It sustains above that than you think market is bearish and lets wait for the close above 8577 for exit. At 3:20 price is comfortably closing above 8577 , You think its just one of scenario as market is doing time correction and it will come down, So Hold on to losing trade. And Yesterday it was a Big Zoom and now we are up more than 200 points from 8577. But you are holding to losing trade hoping it will come down.
Another possible scenario is you exit at 8577 but do not go long and watching this rally from sidelines as last time you went long it did not move aggressively.
Does the above 2 trading scenario happens with you quiet often.
In Both scenarios You were not able to take quick action based on your trading plan Failing to Pull the trigger,You think to yourself something like: “I’ll let the market run its course because I don’t think it can possibly keep going with how far it’s already moved, I’m not going to get in here” etc.
Let me tell you, the above scenario is something many traders experience in there trading career.
First, let’s discuss what tends to happen to traders who face this problem…
Trading can be difficult because each trade and market scenario is going to be unique. As a trader we need to make our self understand every trade is random in nature and outcome of 1 trade should not impact the outcome on the next trade. It take lot of training to think like this.
Trending markets is where the maximum money is made but this is what most of traders miss. Most of traders suffer from I think so Syndrome “This market has fallen (or risen) so far in this short space of time it can’t possibly go any further”, market is forming higher highs or vice versa but we convince ourselves that it can’t. This is classic analysis-paralysis, and we miss the move.
As a trader we analyze these scenarios, make sure next time it happens we will not miss it but as i told making money through trading is hardest job. Next time around we do take a similar trade but if it’s a trade that loses, we then destroy ourselves mentally. You can see how this becomes a vicious mental circle where you see a trade work out that you hesitated on, then take a similar trade and it fails, then you start getting mad / over-trading etc.
How to avoid this problem we will discuss in next article