Thursday, July 16, 2015

Handling Disappointment and Regret

We must all suffer one of two things: the pain of discipline orthe pain of regret or disappointment.
Jim Rohn
A powerful market influence is fear and greed but fear and greed aren't the only emotions that influence our daily trading decisions. Two other emotions; disappointment and regret can also impact what we do. It is quite normal to feel disappointed when our trades fail to meet our expectations, and regret when we think that we have made poor decisions that could have been easily avoided. We often believe, as traders, that we must always be right and that trading outcomes must meet our expectations. These core assumptions should be questioned and by doing so you will be able to cultivate a peak performance mindset more easily.

Merely changing our perspective on this issue can change how we respond emotionally to trading setbacks. If we believe setbacks are rare, and that they are awful events, then we are going to be prone to experience extreme feelings of disappointment and regret. If we however understand that setbacks and losses are inevitable, then the disappointment and regret are easily dealt with. We must remember that a single trade is just that, one trade among a series of trades. The only outcome that matters in the end is the overall performance across many trades and not the outcome of this trade.

You can control unpleasant emotions by taking the proper perspective. Humans tend to overstate the adverse effects of a dreaded outcome. And there are a few simple strategies we can use to control these emotions. If we control our risk on the trade, and plan it out carefully, the risk will be minimized and the actual potential loss will not be catastrophic. Once the risk is truly minimized, remind yourself "I'm making more out of the potential loss than it deserves; it is not going to be as unpleasant as I'm thinking it will be." 

Minimize disappointment and regret by impersonalizing the trade. Think probabilities, "This is just one of many trades, its outcome means nothing, the big picture is all that counts." Remind yourself of the relative insignificance of this trade, you'll minimize the potential regret should you lose. Avoid over-interpreting the significance of a trade; a single losing trade (or even a few losing trades) doesn't mean that you have poor trading skills; it may just be a run of bad luck. There's no point in making the outcome of a trade symbolic of your skills as a trader. And, most importantly, never put your self-worth on the line with your money. You're a professional. The outcome of the trade should not influence the positive view you have of yourself as a person.
Reprint Prudent Trader Archives 2005

No comments: