Last updated on April 20th, 2020
There’s a lot to be said about human nature and how it applies to trading. One vastly important aspect to come to terms with is the instinct to keep hold of what we have. The problem with this comes when those days where conditions are ripe for a strategy transpire, it’s easy to miss out on a lot of extra ticks.
You won’t always be able to take everything that’s there when the markets are good, but if you know when to push a trade, you’ll probably see some of your good days turn into great days.
Taking a few winners and then stopping for the day is going to mean leaving a lot on the table on these days, but on other days it can mean saving a lot of money and hassle. So how do you decide whether to carry on trading when you’ve hit a certain level of profit?
Even if you don’t have a daily profit target or set number of trades as we suggest with “Power Of Quitting“, the chances are you’ll have a figure you naturally become happy with or will at least start to seriously weigh the risk of taking another trade and the chance of losing what you’ve got. I know when I get to this stage my natural instinct is to keep trading.
On occasions I’ve made money when I listen to my gut and kept trading. On occasions I’ve lost money too.
But in the vast majority of cases, I’ve finished the day tick neutral from my original target, had a whole heap of extra round turns on the board and exerted a significant amount of additional concentration and emotional stress. The other type is the trader who leans towards stopping as soon as they get close to their target.
Should You Stay Or Go?
The issues which must be addressed in order to assess whether it’s a good idea to stop or continue trading are:
- market conditions turning sub-optimal
- switching off mentally
- being emotionally opposed to continuing to trade
- the “I should’ve stopped” syndrome.
Let’s take a brief look at each of the issues before moving on to how to decide whether to continue.
1) Market conditions turning sub-optimal
This is perhaps the most obvious issue when it comes to pushing yourself in attempting to have a “big” day. Sometimes there’ll be some good movement early on due to economic reports for example and sometimes there’ll be market moving speakers which temporarily elevate the level of volatility. When the smoke clears though and the markets begin to crawl, if you’re still trading it like it’s moving well, you could find yourself in trouble pretty quickly.
2) Switching off mentally
There are two aspects to this.
- First off is literally having switched off after hitting an acceptable or good target. You’re no longer monitoring the markets with the same levels of attention and your mood has become overly relaxed. Trading from this point on is potentially devastating if you’re not careful. You could well end up turning a decent up day into a big down day.
- The other aspect is when you’ve already exerted a lot in terms of effort and emotion. The same applies as with the first aspect although you’re far less likely to want to continue to trade. Rightly so too. If you’re not sharp or able to concentrate, your odds of trading effectively decrease significantly.
3) Being emotionally opposed to continuing to trade
Let’s say you’ve had a bad run, or maybe it’s Friday afternoon and you’re looking forward to the weekend and a couple of drinks with friends. You’ve clocked up a tidy profit and you want to bank it. If you’re on a bad run, turning it around is something that needs foundations to build upon and regaining a level of consistency is the all important factor.
One good day in these circumstances is good, but it’s more important to get on a roll of positive days. In terms of it being Friday, well I know when I’ve lost a nice profit the weekend has not exactly been fun. It’s a difficult thing to stomach as well when you’ve given up a profit like that.
When you’re at that point and you want to stop, your emotions are heightened. Trades are less likely to be as objective. Every tick against you becomes an emotional drama.
4) The “I should’ve stopped” syndrome
When you’ve wanted to or felt it might be good to stop but you’ve carried on trading and lost it all, it’s pretty easy to beat yourself up about it. It’s what I call the “I should’ve stopped” syndrome and it’s definitely not a great feeling. But what’s worse is that there’s no bias to this feeling.
What I mean by this is that whether or not you did the right thing and traded in the right way, because you felt unsure about continuing to trade, your mind tells you that you’re a bad trader! “I was too greedy” or “I was dumb to carry on” are fairly common and destructive thoughts. To break out of this train of thought, it’s beneficial to go back to your trading journal if you keep one, at a time when you’re less stressed and tired. It may be that your trading was indeed poor, but even good trading that resulted in losses can feel terrible in these circumstances.
I hope it’s apparent that the problems are potentially numerous in pushing for large day, but again I’d reiterate at this point that if you can become skilled at identifying when to push, it can make a really big difference to your bottom line.
Make Your Decision Wisely
So to decide on whether continuing to trade and push is justifiable, you must consider the points above. To work out if the conditions are ripe, you must not only have a firm handle on the way you monitor the markets and how they are trading, but you must also ensure you are aware of what the best conditions for your trading system are.
It could be that it would get trounced on a day when price is strongly trending or it could be that the same type of market is ideal for the strategy. You must also be able to objectively determine what your mental and emotional states are throughout the day and in particular, at the point where you make the decision of whether to continue or not.
Lastly, you must decide how you will trade it if you do. Will you halve your position size? Will you stop if you lose half your profits? Will you trade all of the same setups as before? All of these things have the potential to help protect you from the “I should’ve stopped” syndrome. Whatever you decide will work for you,