To miss planned trades that turn out to be fantastic winners is perhaps one of the most frustrating things that can happen to a trader. It can make a huge difference to your bottom line and leave you with a bruised ego if you don’t have enough emotional capital built up.
Unfortunately, this happened to me BOTH live European session trade rooms this week! Two very similar trades which set up and triggered very quickly. Of course, there are trades that we will inevitably miss due to their speed, but the goal must be to minimize the chances of this happening. So I have to take a look at why this happened and deal with it in an appropriate manner. If you address each facet of trading in this way, you can improve your efficiency and increase your bottom line.
It might seem obvious what the problem of missing a great winner is, but there’s a little more to it than meets to eye.
Cause and effect
When you miss planned trades, clearly the most obvious and immediate impact is going to be the difference in what your P/L would have been had you taken the trade. And it’s the should have been big winners that are usually remembered. It’s also important to consider the impact of missed trades that would have been losers in order to get a more accurate picture. Having said that, traders all too often do not record the precise cost of missing trades by actually logging them.
But if the majority of your missed trades would have been winners, the probability of your edge won’t be able to be fully utilized. Think of a coin toss for example. Over a large set of trials, the likelihood of getting heads at a rate close to 50% is very high. If you were to miss out just 2 in every 10 heads for example, the probability of getting a head falls to 44%. Then consider that most people tend to look for strategies with a good R:R ratio and you can see that missing winners can really start to skew your expected return.
Another implication of missing good winners is that if you have a daily profit target which needs to be hit before stopping trading for the session, keeping trading after a technically favorable move could mean conditions might become sub-optimal and increase the chances of taking losing trades. Take a system that looks to profit from directional markets as an example. For the majority of the time, markets tend to make a directional move but not continue to trend throughout the whole session. So if a good trade happens in this move and it’s missed, conditions might not be particularly favorable going forward.
Chasing trades and other psychological issues also can become a factor. If you haven’t made the turn or you are in a rough patch, seeing a trade work when you’re not on board can be painful and subsequently lead you to making rash decisions. Chasing trades in particular can have a disastrous psychological impact.
So why should it be that we’d ever leave ourselves open to the chance of missing great trades at all?
Reasons why traders miss planned trades
There are lots of reasons why traders miss planned trades. Markets can be incredibly slow and dull right before breaking out for example. The lack of movement lulls people into a false sense of security and then just as you look away, the market explodes into activity. This is a major factor.
But there are many other reasons too. There are technical causes such as looking at too many markets. You might have too much to draw your attention other than trading (either work or family). You might spend too much time at your screens and end up suffering from fatigue-based concentration lapses. You might also suffer from a lack of belief in either yourself or your strategy and actually the lack of focus is in fact a self-sabotage mechanism.
Whatever the root causes of missing your planned trades are, it’s crucial to your success that you attempt to identify them.
Fixing the problem
If the causes aren’t obvious, the most accessible way for most traders to pinpoint them is by keeping a trade journal. Keeping an accurate record of your thoughts and approach to trading on a day-to-day basis can be very revealing, so long as you then take the time to go back and do a proper review.
In my case, the reasons were obvious – I needed more screen space.
For more updates from Mark and the team at NetPicks, be sure to visit their trading tips blog at NetPicks.com.