After carefully studying the fundamentals of a tech stock, Jack decided to buy 1,000 shares at $60 a share. After a recent product announcement, however, it traded at $64. Although it was higher than he had preferred, he felt it was still a good investment and figured he might as well buy at the higher price before it went even higher. As is often the case after a product announcement price jump, the price fell to $60 a share a few days later. Jack started to kick himself, “Why couldn’t I wait.
I knew it would fall. I should have waited. I could have saved $4,000.” Jack plans to hold the position for six months and he still thinks the stock has the potential to hit $70, but he can’t seem to stop berating himself for buying too soon and spending an extra $4,000. His feelings are understandable, but it’s distractions like these that often throw traders off target. It’s vital to continue to focus on your trading plan and not be stifled by self-reproach.
Depending on your personality, you may be prone to kick yourself for making trading mistakes. In Jack’s case, he may have bought a stock at a higher price than he had hoped, but it isn’t a disaster. According to his trading plan, he can reach his objective of selling at $70 in six months, and making $6,000 as he had anticipated. Many traders, though, are overly perfectionistic.
They can’t stop obsessing about how they could have entered and exited a trade more skillfully. Striving for high ideals is noble, but when it distracts you from focusing on your ongoing experience, it can be detrimental. For example, if Jack continues to berate himself for buying too high on this trade, he may not be able to focus on researching the next trade and developing a sound, new trading plan. He may also feel less spontaneous and creative. His mind may become filled with self-doubt and his thinking may become clouded. Striving for perfection can be much more of a distraction than a benefit in the long run.
At times of self-reproach, it’s essential to talk yourself out of it. It’s necessary to move from a mental state that concerns obsessing about errors to a calm, focused mindset concerned with thinking creatively. Although they may sound trite, repeating a few common sayings about trading the markets may be quite helpful: “I’m going to trade my plan and stick with it. I’m going to go where the markets take me. I’m a mere mortal; I can’t control the markets. I need to accept the fact that I’m human and may make mistakes.” You don’t have to trade perfectly. You just have to trade profitably. Put a single trade in perspective.
It’s just one trade of the many trades you will make in your lifetime. You may lose or you may win, but the outcome of a single trade does not matter. What matters are your overall profits across a series of trades, not just a single trade. Rather than beat yourself up for minor mistakes, stay on target. You may make a mistake here and there, but it’s all right. Take a mistake or a setback in stride and move on. If you look at the big picture and accept your human tendency to make mistakes now and then, you will increase the amount of time you spend trading with the peak performance mindset of a winning trader.