Hindsight in trading

One of the games with play when we are trading is based on what happens in hindsight. We all do it. We take a trade, take a point or 2, then when the market goes another 2 or 3 points farther, we wish we had held on. “If only ida, or I woulda, shoulda, coulda”. We all have done it. BUT…..we all do this after the fact. If we exited with a point or 2 on a long trade and the market dropped 5 points we would never say “I wish I had held on to that trade”. Why? Because again we have the benefit of hindsight. We see what happened in the market then make a judgment on how we managed the trade. It’s a dangerous game because it’s not based on reality. The only trading decisions we can make are in the moment. We trade the facts right in front of us at any given time. We don’t like a trade “right now” we exit. It’s that simple. Then we have to live with our decisions.

If you want to be a little agr on entry knowing it may pullback just a little bit farther, then live with that decision. If the market pulls back even more and you are stopped out, you start wishing you had waited a bit more, or were not so agr on entry. Again this is with all the benefit of hindsight. If the market filled you and took off to the upside, you would never question what you did. It’s only after the fact that you engage in that inner dialogue. This is a habit that traders want to get a handle on and we are all prone to doing it, making judgments about our real time decisions after the fact.

One skill all traders need to work on and master is the “art of letting go”. You have to be able to let go of what just happened in a split second. If you don’t you won’t be able to see the next trade clearly and make the best trading decisions. This is a tough one for most of us because there is so much emotion tied to money. But money to traders is just inventory, it’s how we do business. Most days we should have more money at the end of the day than at the beginning. There will be days where we have less. It’s the ebb and flow of trading. The circulation of capital that we engage in every day.

Learning to let go of trades instantly is the skill all professional traders have mastered. That goes hand in hand with trading the probabilities. They know what the positive expectation is of their method or system. So a loss does not bother them. It’s part of doing business. It’s part of the overhead to trade, just like other businesses have their overhead. We have data, commissions, and losses.

Looking at a trade in hindsight and erroneously making judgments and associations about your trading is counter productive to the real goal of letting go. Hindsight is good at the end of the day. Take a look at your trading and your results. Then look at your method/system and see what it produced if trading flawlessly. None of us will trade any method or system flawlessly. There will always be a gap between what we actually do and what the method produced. It’s our goal using hindsight at the end of the day to review and see how we might have traded a little better. How we could have reduced our emotions in the heat of the battle. For that purpose once the day is done, hindsight provides us with a useful tool for improving our day to day performance. In real time, hindsight is just a mental game we play typically with the pain of regret either missing a move, missing more profits in a move, or being stopped out and regretting taking the trade to begin with.

Here are a few tips to minimize trading in hindsight:

1) Stick to the facts. Was your trade valid? Was your entry within the parameters defined by your method? Did you honor your stop? Did you take profits based on what you saw in real time. These are all great questions you can ask in real time once you exited win, lose, or draw. Then let ig go.

2) Realize that you are trading probabilities and losses are part of trading. It’s the cost of doing business and all businesses have losses and associated costs in order to thrive. Trading is no different. Accept the probabilities of your method and trade with confidence knowing you have a positive expectation.

3) We are all human and from time to time will miss things. We will make mistakes, even the best traders. It’s not about eliminating the mistakes, it’s about minimizing them, and when they happen, minimizing the emotional impact they have on taking the next trade. Learn to let go and cut yourself some slack. Learn to laugh when you are stopped out. “Boy that didn’t work out very well….Ynuk Ynuk Ynuk!” When you can laugh at your losses, you are well on your way to accepting them as part of your cost of doing business and you will move on to the next trade without dragging that last trade around for the next few hours. Laughter is a great neutralizer. Learn to laugh at your mistakes.

Practice these simple strategies to keep hindsight judgments from taking their toll on your real time trading and you will find the emotional impact of both losses and profits will even out during the day allowing you to do your job as a trader more effectively.

Good Trading!