Brian Shannon at AlphaTrends recently wrote the post Bad Trade Gone Good (with some luck). In it he describes a recent situation where he found himself on the wrong side of a major trading mistake. Actually, it was a couple of them.
On the one hand, Brian hadn’t set a stop as he normally does when placing trades. He’d been distracted. On the other hand, he entered an order 10 times the size he intended! 
I think it’s probably a safe guess that the same distraction which cause not putting in the stop also caused the error in position size entry. Right there is a good lesson for traders – especially those who are thinking about trading in a timeframe where they can’t assure good focus (like trying to day trade during work).
If you can’t be locked in as you should be, then it’s probably best not to be trading that particular time.
There’s another side of Brian’s story, though. He got lucky because the market actually turned back around and put him in the green on a position that would otherwise have been a major loser. He really should have taken a sizeable loss.
In this particular case, the fact that Brian took the time to look at the chart to see what the situation was allowed the market enough time to make the turn. As Brian noted, though, this is pure luck. It’s not something you should ever expect (or pray) to happen if you get caught on the wrong side of a hit like that.
Actually, I’m not all that keen on the idea of doing a re-analysis as Brian was starting to do. There is a huge risk of developing a skewed view of things, one that ends up being biased toward what you hope to happen. It comes from the old trap of weighing positive evidence too heavily and negative evidence too weakly.
That’s why you should do all the analysis and strategize before you get in to a position. If you know what the plan of action is for the different scenarios which could unfold (both positive and negative) you can avoid the need to re-analyze the market mid-trade. This will prevent both over-analysis and skewed perspective analysis.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
