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Reader question: regrets in trading?

Reader Thomas asks:

have you ever written about regrets in trading? They seem to dominate mine…missing an entry, not taking the exit, etc

Good question, Thomas, and, no, this isn’t something I have written about recently. I do think it’s an important topic, and worth some time, but the answers are, mostly, the same as the answers to most trading problems: make sure you are trading with an edge, make sure you are properly capitalized (so that you can trade small enough), and simply do the right thing.

We all struggle with regrets in life, in trading, and in nearly everything we do. The constructive side of regret is that it makes us consider our actions: are we doing the right thing? Is there something we could or should be doing better? Are we repeating avoidable mistakes? Those are constructive questions, and regret serves a very good purpose when, for instance, a trader keeps doing the same silly thing. What if you keep holding trades past your stop? Regardless of whether the trade is a win or a loss, you should feel regret for doing the wrong thing. (In fact, if you make money doing the wrong thing, you should probably be terrified at the learning experience you just had!) Regret, in this sense, can be a constructive form of “away from” motivation, saying “I do not want to do that again”, and the pain of that regret can modify your behavior in the future. This is the best case.

052714_1450_ReaderQuest1.jpgIn other cases, people spend too much time agonizing over details and what might’ve been. The past is past, and you cannot change it. The correct mindset is that you must take the lessons of the past, learn them, act on them, but you do not need to carry the pain and baggage from the past. You have to find a balance where you do not discard the lessons of the past, but you also do not wallow in your misery. This is a case where introspection and journaling can be very helpful.

qqHere is an important question: what does it mean to be a professional? I think the answer is that a professional shows up for work and does the right thing. No matter what happened the day before, no matter what is going on in his personal life, no matter whether he wants to go to work today, is inspired, or not–a professional goes to work. He shows up, and he does the right thing. With that insight, you can craft your trading career. Do you want to be a professional trader? Then show up, and do the right thing. You have regrets? Great, so do we all. What do you do about them? You show up for work, and you do the right thing–simple. I’m not trivializing the problem, but the answer, so many times, is simply to control your actions.

Now, there are other questions hidden here. Many people have regrets because something is wrong with their trading. Are you gambling? Is your account too small so that you are overly dependent on the outcome of any one trade? If so, the pain and regret you feel when you trade are pointing to another problem (your undercapitalization) that you must address. Pain is not always bad! Pain can move us away from mistake and error, and this is potentially very constructive, but what you do with the pain matters. Are you not trading with an edge? (Related question: what is your edge and how do you know? Because you read it in a book, paid for a system, are following someone’s trades via social media, or took a certification course is not an answer.) If you are losing because you are doing something that doesn’t work in the market, then your pain is also good.

So many psychological problems are “fixable” simply by doing the right thing. If you have deep-seated problems dealing with regret in other aspects of your life, then perhaps addressing those regrets is a good idea. Whether you do that through formal therapy, religions or spiritual approaches, or some other avenue does not matter as much as that you do deal with them. For trading-specific regrets, the first question to ask is if your regret has something constructive to teach you. Why is that emotion there? What is it trying (constructively) to do for you? Most seemingly negative emotions actually serve a purpose; they can just get out of control. Understand the emotion. Understand why it’s there, then, be a professional, and simply show up for work and do the right thing.

AdamHGrimes

Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.
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