Today I want to share my thoughts about how our mind likes to fool us. It does not happen on purpose, but it does happen. And it is very natural to happen.
The aftermath is a natural (let me call it) phenomenon. We see something happened on the chart and feel we missed the obvious trading decision. Either we see the obvious entry we didn't take, or we see the obvious exit we didn't take. Or we are in a trade and did close the trade only to see after some time that the exit was pre mature and we should have stayed in the trade. Sometimes news scare us out, sometimes it is our emotions that get the best of us. Now that we closed the trade we took a small profit but the profit could have been much better if we had stayed.
This kind of aftermath is never going to serve you well. Why(?) you may wonder, since this shows us possibilties how we can improve. But the main point that is missing in the chain of thought is, we are trading on the right edge of the chart. Not on the left side, where we can see what has happened.
We all are great traders on the left side of the chart. After the facts things are so obvious that it seems like the chart was/is screaming at us. And this kind of aftermath is not going to do us good. We will keep doubting our decisions. We will not close a trade when it is time to close, because we feel the trade is going to go in our direction, because last time it did exactly this.
Now let me be clear. We do need the past. We look to the left to evaluate the current situation to generate potential future profit. But if we fall to the trap and start trading hindsight, we are doomed to fail. We are doomed to repeat the same pattern of doubting our decisions.
Hindsight is important, to understand market structure and the characteristic of the asset you are analysing. We do our backtests using past performance of the asset. As long we know this is hindsight trading and we only do this to understand the very characteristic behaviour of the asset, it is healthy. But once we let our mind fool us, we are surely going to go through a lot of emotional pain. This emotional pain in turn is going to make us take bad trading decisions (either by taking trades pre maturely or by hesitating when we have the right time to take the trade). This is a sure way for a vicious circle of pain and drawdown.
There will never be a certain trade. We as traders have to understand that we are acting in uncertainty. Once we understand this, we understand that we work with probabilities. And now the aftermath is not going to hurt us. If we decide to close a trade, because price it is at a level where there is a high probability of a reaction, then closing the trade may be the right decision (depending on your money- and risk management methodology). If the asset continues in the original direction lets sasy 100 pips, then this should not cause us to think, "I should not have closed the trade" or "Now I am missing 100 Pips." The trade got closed because of the probability of a reaction at that level. It could have reversed and left us with no profit at all or worse with a loss.
Doing this kind of aftermath, we will never be right. It is a battle we will never be able to win. Because everything we do will be wrong. Why take the battle then in the first place. Imagine if we had not closed the trade and price did retrace. Then we'd think "I should have closed the trade and taken the profit". You see, this kind of aftermath is not going to serve us well.
Thank you for reading. If you have any questions please leave them in the comments section below.
Happy trading,
TT
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