How Much Does Your Last Trade Matter In The Next One

The ‘trade bug’ could bite you any time after you’ve processed your last trade since the final outcome of your last trade could seep into your mind. The way it plays in your head would depend on how you’re trading, as well as if you’re prepared to handle the results of your trade. No matter what, you don’t want to be sick by letting the trade bug bite you. This article has all you need to keep yourself safe! Visit mex

How much does your last trade matter?

Your previous trade speaks volumes about how you are as a trader. For instance, how much in sync is your previous trade with the last few trades you placed? If you lost your latest trade but this time the loss was five folds more than the last one, you need to check what you’re doing wrong. There should not be a lot of gap in your losses, they might even be at break-even but the loss must be checked. Winning trades would typically be different and also vary more in terms of the risk but if you find yourself with several small winners with less than 1R (1 times risk) along with a few big ones, well, something is not right there too and you need to fix it. 

Your last trade could have a bad impact on your mindset as well as your trading approach. In an ideal case, your previous trade is not likely to affect your next trade but if it lingers on your mind for too long as it does for most traders, it could impact your next one. 

Your previous trade would make a difference only if you’re trading wrong and are paying too much attention to it. Remember that:

• If you lose a trade, it will not have any effect on the possibility that your next trade could be a winner.
• If you’ve had a win, it would also not be a guarantee that your next trade will also result in a victory. 

The secret is to stick to your plan and embrace both wins and losses because you have a larger picture in mind. 

Recency bias explained in the context of trading

A trader is said to have a recency bias if they’re paying a lot of attention to their latest trading decisions/trades to the extent that they’re losing sight of the larger scheme of things. 

• Winning-streak recency bias:

Winning streak recency bias implies that traders who have had a series of wins or a single large win are swayed away by that streak. As a result, they end up increasing the risk they wish to take on the following trade which could even be more than what they’re comfortable losing. Alternatively, they might even place trades that are not in sync with their trading plan. The key problem here is over-confidence. The wins tend to cloud the judgment and one doesn’t factor in the risks as much as one should. It often leads to major losses thereby negating all that was won in the last trade(s). 

• Losing-streak recency bias:

Losing-streak recency bias implies that traders who have lost trades recently are under the influence of their loss. As a result, they may cut down their risk size and place it even further below their normal 1R risk amount. They might even bring down the number of trades they typically enter as they start fearing the loss. While it was overconfidence the last time, in this case the driving factor is fear. It is human nature to magnify the risk involved and thus, they end up losing out on opportunities in the market because they feel that the market might ‘dupe’ them yet again. This generally happens when the investor starts worrying a lot about the chances of losing and it takes a toll on their ability to trade. 

• Cure recency bias in trading

You can get rid of recency bias in trading by arming yourself with the right set of knowledge as well as education. You should come to terms with the fact that you can’t help being affected by your trades, it is just human nature. This self-awareness would help you keep your emotions in check and you’d know that it’s time to take a break. Rather than trading while facing a sea of emotions, it is best to step away from the market and trade again tomorrow. 

Edge vs. Emotion

Your trading edge is essentially the entry trigger which when played over multiple trades, puts the odds in your favour and you have more chances of winning as well as earning. Your trading edge should be at play in an uninterrupted way, irrespective of your emotions. But remember that your emotions could affect the way you trade and hence it is the paradox of trading edges vs. emotions.

This is why you have to get over your previous trade so you can let your trading edge do its job  and thereby help you earn more money. You must keep reminding yourself that wins and losses happen at random in the market and thus you need not let it have an effect on your next trade.

If you’re a disciplined trader who operates with a proper risk management strategy in every trade, you will be able to trade rationally. Having a routine, a trading strategy, and a set of risk management rules would help you avoid emotional trading. 

Conclusion

Your latest trade would give you a glimpse of your trading performance at large as well as your mental trading state. If you come across a trader who has been trading consistently and has earned steady profits in the long run, do see how their last trade did. You are likely to discover that their trade fits well with their trading style and plan while also showing what their approach is like. Any good cfd shares and trader is well aware of the importance of consistency, discipline, and patience as it helps them avoid getting bitten by the ‘trade bug’ so it doesn’t hamper their next trade.