I spent this past weekend shelling out big bucks for one of those mammoth, motorized people transports you and I call an SUV.
Boy, this sucker is huge!
As I sat in my new (used) car, images of scaling mountains and crossing desert terrains filled my imagination. Hill climbing, rock climbing, mountain climbing, here I come! And then… a tap on the shoulder. The salesman awoke me from my vegetative state of drooling to show me the final all-in purchase price.
Wow! Sticker shock!
The images of grandeur disappeared and now all I could see were all the numbers followed by commas and more numbers and numbers… what a “huge” purchase this turned out to be! No matter what, whether a five dollar roll of toilet paper or a new car, I always feel buyer’s remorse (regret) when making a purchase.
Trading can be very similar. We put our money (real or demo) on the line in the pursuits of financial gain and happiness. Our trades are placed plentiful when the potential for profit is there, and we scurry away with lightning speed when the crowd starts selling off in great numbers. “Hurry, everybody out!”
We don’t want to be stepped on or left behind, right? So with the slightest unforeseen movement, the masses fear the worst is imminent. They get out as fast as they can, and we, of course, follow. This fear (and greed for some) becomes a controlling emotion, dictating their trading decisions and behavior. Just as powerful an emotion as fear and greed is regret.
Regret is similarly controlling in that it can keep us from placing a trade because we don’t want make a mistake. We undoubtedly want to feel good about our decisions and strategies. In our attempt to do feel this way, we find it more painless to steer clear of making a trade all together, avoiding any risk of failure. Taking this mindset of avoidance, however, will definitely not lead us to the potential for profits that we seek.
Regret comes about after we make a decision and we then start picturing the things that could have gone differently. When trading, regret is an easy feeling to have because it can occur both when making a move or when doing absolutely nothing. For instances, you open a trade with the best intentions, only to have it stop out for a loss of your entire account balance. You automatically feel regret for ever taking the position and now being poor.
On the other side of the coin, you don’t take a position because you’re allergic to risk. Your missed opportunity turns out to be the trade of the century, and it would have made you a gazillionaire! Arrrgghh! You seep into a state of utter regret.