For traders, is there even anything out there that hurts more than enduring a losing trade? Well, actually, yes, there is: enduring a missed trade.
For many of us, it’s a missed trade—not a losing one—that cuts the deepest. Afterall, one winner can more than atone for a losing trade, but you can never recover the great trades that you, for whatever reason, didn’t take.
You think back on those constantly, even long after they’re finished. To this day, you’re probably still kicking yourself because you didn’t see it, or even worse, because you did and then talked yourself out of it!
It’s a potentially devastating pattern, but it’s also treatable—or even preventable—and that will be our goal in this article. By understanding what causes a missed trade, and then examining its impact, we will become better equipped to prevent it from occurring with any kind of regularity in the future.
It’s that awful moment when you sit there watching a trade that you just “knew” was “perfect” head in the desired direction without you on board. You’re instantly filled with regret, and most of all, you’re mad at yourself, because you know better than that! So what happened to cause that missed trade?
Well, there’s a lot that can go wrong in between the time you qualify a trade set-up and the time you pull the trigger and execute the trade. And unfortunately, much of it happens between your ears, in the form of biases and overthinking. So here are the primary culprits that cause a missed trade:
Fear and Emotion: It’s all-too-easy to hesitate or talk yourself out of a good trade by fixating on money, worrying about end results or being “right,” or allowing news or differing opinions to affect you. Fear and emotional attachment make it much harder to act decisively and are easy ways to suffer a missed trade.
Confirmation Bias: Validating your set-up is great, but not if the search for confirmation signals causes second guessing or faulty execution. Especially on the shorter time frames, even slight hesitation can ruin everything and lead to a missed trade. Besides, there’s never been any evidence to suggest that more confirmation means better trading results!
Recency Bias: Are you ever shaken or fearful on the heels of a losing trade? Does that make you hesitant or even unwilling to act on the next set-up? Those are classic signs of recency bias, where the outcome of a previous trade(s) may creep in and affect the handling of the next one. A missed trade can just as easily result from this, too.
It’s really nothing fancy or profound: just get back to what you know, which is your own, proven trading strategy!
Afterall, where in the “rules” does it say that biases and emotion are allowed to impact trade decisions? Or that any trade set-up that your strategy deems acceptable even requires confirmation? Or that the outcome of the last trade should force you to change how you plan and execute the next one?
Take any missed trade as a glaring indication that you’ve not traded according to your plan. Stop immediately and review the rules and requirements as laid out in your trade journal. Find where you’re getting off track, and determine why. Then, make a plan to eliminate it. Perhaps most of all, though, don’t panic, because it might only call for an easy fix!
For example, if you find that news and outside sources are creating doubt in your mind, well then, turn off the news!
If confirmation bias is a problem, keep your rules close by—or even post them in plain sight—and look at them often while you trade. When a set-up meets all of your qualifications, get validation from your trading rules, not by pouring over multiple indicators and time frames.
And if it’s fear and emotion that’s getting the better of you, well, remember that’s why you have risk controls in place and a proven trading strategy that will work for you if only you let it.
We’d be remiss not to impart the following words of caution, because, quite honestly, entire trading careers have been ruined in the aftermath of a missed trade…and here’s why:
Following a missed trade, we’re frustrated, we feel like “getting revenge” on the market, and are looking for the next available way to make the money we just left out there on the table. While trading with clouded judgment, trying only to earn a certain dollar amount, or feeling that the market “owes us something,” it’s rare and unlikely that anything good will happen next.
In the rush of things following a missed trade, many traders have used excessive or unlimited risk, traded new, unfamiliar, or sub-par set-ups, and ignored the money-management principles that normally guide their trading. Disaster often ensues that way, and for some, that may have been the last trade they ever took.
See also: How Traders Can Stop Self-Sabotage
If ever you do suffer a missed trade, you might even consider closing down your platform for (at least) the rest of the day. It’s likely that you’re feeling out of sorts at that point, anyway, and to boot, you’ve just made a mistake. Sometimes it’s best to pay your own penance, i.e. shutting yourself down, especially before things quickly go from bad to worse and you carry the missed trade over to your next one.
A missed trade is hard to handle mainly because of the regret that is left behind. Afterall, what actually happened was a scenario where there was nothing—except you—standing between yourself and a profit.
That’s frustrating, yes, but it’s also fixable, so by taking a look at what flawed thinking caused the missed trade, you can take strides to ensure it doesn’t happen again. For many traders, that means addressing certain biases, trading free from fear and emotion, and by all means, never compounding mistakes in the aftermath of a missed trade.