Trading Psychology: The Psychology Of Chasing Trades

We all know that chasing trades is a horrible decision, yet we still sometimes find ourselves struggling with this bad habit we have.


Having a game plan and sticking to it is tough especially when the market is volatile. It’s so easy to get sucked into a trade that is outside of your trading plan when the market makes larger and quicker moves in price. Suddenly    everyone wants to get a piece of it. By doing this you plant the seed of inconsistency. Even though additional movement is likely to generate more trading opportunities, FOMO (Fear Of Missing Out) takes over and decisions become rash.


If you ignore the rule of not chasing trades you might be rewarded with a good trade, but this does not benefit you as it is the same as rewarding your child for doing something wrong, they will begin to expect positive feedback for bad behaviour. This is what happens when you are profitable by luck when you chase a trade. It goes well so you think that next time it will be alright and then the next thing you know, you have conditioned yourself to chase trades because it seems like the market is positively reinforcing your behaviour – the market doesn’t care and you were actually just lucky. By doing this you are not helping yourself in anyway, you are picking up on bad habits that can lead you down into a spiral. By getting the trade in after the market has moved up and before it has started to go back, the risk of it going against you is increasing and increasing fast.


So why chase trades? The fact that you have started to chase a trade means that you have become emotional (remember a successful trader keeps their emotions neutral), and when the trade goes against you it’s only going to intensify your emotions. Psychologically, chasing a trade can be damaging. When those trades do go right, after sitting in a draw down, you end up taking less profit than if you had just entered at the right time and followed your strategy and now your profit margin has diminished.


So, here are 4 tips on how to stop yourself from chasing trades:


  1. Try being focused on your trades, have a time and environment that allows you to focus solely on your trades without distraction.


  1. If you find that you are often missing trade setups by a small margin, ask yourself if your entry plan needs revising or whether you might add a secondary entry plan if you miss the first chance to take a trade.


  1. Are you being too impulsive because of FOMO? Be honest with yourself, awareness is the first remedy


  1. Give yourself a reasonable limit as when to enter the market, be realistic about it and take into consideration the risk to reward ratio.


Happy trading, stay consistent and keep learning, success will come.


Ryan Mowatt, The Performance Coach

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