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Don’t Chase Day Trading – Bad Habits of Traders – Part 3

There’s a common pitfall that many newer traders fall into: the tendency to chase day trading. It’s a negative habit driven by emotions like fear, greed, and impatience, leading traders to make hasty decisions that can sabotage their success. Understanding and overcoming this tendency to ‘chase day trading’ is crucial for trading success.

The most successful traders are those who have put in the time to learn, practice, review and adjust over countless hours of trading. They are successful because they were able to identify and eliminate bad habits in trading that negatively impact trading and making profit in trading i.e making money with trading. 

And in today’s post we will look at one bad habit that pro level traders have gotten rid off in their own trading which is the negative habit to tend to ‘chase day trading’. Eliminating bad habits is part of the process of achieving success in trading. But even before you can identify and eliminate bad habits you must first have a strong foundation in the fundamentals of day trading principals and financial market movements which will be the key to your long term trading success.

What is chasing trades?

Chasing trades refers to the impulsive behavior of entering and exiting positions based on emotions rather than a well-thought-out trading strategy. It’s often fueled by the fear of missing out (FOMO), where traders rush to jump on the bandwagon of a trending asset or stock without proper analysis or consideration of risk.

Let’s picture this in a real life trading scenario which I am sure you have experienced in the past if you have been involved in trading for a little while.

Picture this Trading Scenario

We see an amazing trade forming. We have all our green lights in place, put in our order to get filled at the right price action, and we don’t get filled on the trade.

It can even hit our order waiting but never actually get filled to be fully in the trade.

IMPORTANT – we never ever enter at market price. It causes us to immediately lose money. All our trades will be put in deliberately and we always have the price we want to be entered at. We are always in control of it.

So we see the bars hit our order that is waiting, doesn’t fill it (which happens very often) and then we see it go exactly in the direction we want it to go.

This is SUPER FRUSTRATING. Especially if the last trade that you took failed. Or if you’ve been sitting and waiting for a good trade for some time.

This is when our emotional state takes over and we gun it and
we chase it when we see it not fill us and start moving strongly in the right direction.

Now that we chased it, we didn’t enter it on our green light entry. So that means our original target from where we originally wanted to enter, in our minds, has shifted with the new – badly taken trade.

The Psychology Behind the Habit to Chase Day Trading

To truly grasp the impact of chasing trades, we need to delve into the psychological factors at play. 

Emotions like greed can make traders overestimate potential gains, leading them to take excessive risks. Conversely, fear can cause traders to panic-sell at the slightest downturn, locking in losses prematurely. 

These emotional responses can hijack rational decision-making and derail even the most promising trading plans.

chase day trading
Chasing trades refers to the impulsive behavior of entering and exiting positions based on emotions rather than a well-thought-out trading strategy.

So with a chased trade we are already completely not following our directions. Then we get angry at ourselves for chasing it and don’t want to make it a waste of a trade.

So we wait for the full target amount (which is now different from where we were supposed to enter) and it doesn’t go there because it hit the original target which we didn’t want to take. And now we see the chased trade retrace much further back down and stop us out.

And what most traders do as well in this emotional frenzy, is they start to lie to themselves saying that if they entered where they were supposed to, their stop loss (risk management) would be much further than the one they have now. So instead of losing their normal risk management amount, they have added on even more of a loss.

And now we are sitting on a loss (a big one not only financially but mentally and emotionally because we didn’t stick to our plan). All because our emotions took hold of us.

It will most likely happen to you. However, knowing this now, you will do it maybe once or twice and realize what you are doing. And then you will, with time, learn to control your emotions and understand that there is always another great trade coming.

And that the past trades (if they were losses) are now part of the past. 

Chasing a trade doesn’t repair that and most likely makes it worse because you repeated a loss.

The Consequences of Chasing Trades

Chasing trades comes with negative consequences. These include increased transaction costs due to frequent buying and selling as well as higher risk exposure and a lack of consistency in trading results, the downsides are numerous. 

We also need to consider the stress and emotional toll of constantly chasing the market which can take a significant toll on mental well-being, affecting overall performance.

Overall the consequences of a tendency to chase day trading are numerous and will most likely lead to quitting trading in the end if you do not deal with it.

do not chase day trading
Overall the consequences of a tendency to chase day trading are numerous and will most likely lead to quitting trading in the end if you do not deal with it.

Develop the Pro Level Trader Mindset

The mindset shift needed to move away from chasing trades requires a deeper understanding of the psychological factors that drive impulsive trading behaviors. It’s not just about adopting new strategies or techniques; it’s about rewiring your approach to trading and cultivating a mindset focused on discipline, patience, and strategic decision-making.

The first step in shifting your mindset is to embrace discipline as a cornerstone of your trading philosophy. Discipline involves sticking to your trading plan, following predetermined criteria for entry and exit, and avoiding deviations based on emotional impulses. It means staying true to your strategy even when faced with market fluctuations or tempting opportunities that don’t align with your plan.

Patience is another critical aspect of the mindset shift. Instead of chasing every market movement or trying to time the market perfectly, cultivate patience in waiting for high-probability setups.

Overall it’s about developing a mindset that prioritizes long-term success and strategic decision-making over short-term gains or emotional reactions.

And my #1 recommended tip for developing a pro trader mindset is to simplify your trading strategy, technical analysis and indicators as much as possible. This will allow you to become a more consistent and profitable trader over time.

How to SIMPLIFY DAY TRADING

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Below are some helpful tips to help you achieve this pro trader level mindset and move away from the habit of chasing day trading.

Tips to Not Chase Day Trading

i) Stick to Your Trading Plan

One of the most effective ways to curb impulsive trading is to have a well-defined trading plan. This plan should outline clear entry and exit criteria based on thorough analysis and research. By setting specific parameters for when to enter a trade and when to exit, you can avoid making decisions based on emotions and stick to a strategic approach.

ii) Always Use Stop-Loss Orders 

Protecting yourself from excessive losses is paramount in trading. Utilize stop-loss orders to automatically exit a position if it moves against you beyond a predetermined level. This risk management tool helps limit losses and prevents emotional reactions that may lead to chasing trades in an attempt to recover losses.

iii) Be Patient 

Patience is a virtue in trading. Instead of chasing every market fluctuation, wait for quality setups that align with your trading strategy. Rushing into trades out of impatience or fear of missing out can result in poor decision-making and unnecessary risks. Stay disciplined and wait for opportunities that offer a favorable risk-reward ratio.

iv) Avoid Impulsive Decisions

Take the time to evaluate potential trades thoroughly before executing them. Avoid making decisions based on sudden impulses or emotions. By adopting a methodical approach to analysis and decision-making, you can reduce the likelihood of falling into the trap of chasing trades.

v) Review and Learn from Past Trades

Regularly review your trading history to identify patterns and areas for improvement. Analyze both successful and unsuccessful trades to understand what worked and what didn’t. Learning from past experiences can help you refine your trading strategy, minimize mistakes, and avoid repeating impulsive behavior.

Make sure to catch the Part 1 of Bad Habits of Day Traders  and Part 2 – Profit Targets 

Let`s connect

If you want to learn more about my journey and how I started day trading you can read it here or you can watch on my YouTube channel.

For any questions, you can always find me at traderchick.com. Or if you want to learn day trading basics – check out MY Courses.

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