When rules tend to break
Rule breaks often happen in similar moments. For example:
- Right after a loss, you enter an unplanned trade to win it back (revenge trading)
- Price nears your stop, so you push the stop further away (why you move your stop loss)
- You hit your daily trade count or loss limit, and keep going with "just one more"
- After a losing streak, or after a big win, you size up
Asked before the session, you would probably say you won't do any of these. Yet in the moment, many of us do.
Why knowing isn't enough (briefly, from research)
Breaking a rule does not necessarily mean you lack willpower. Research on sticking to plans points to a few things:
- When we are calm, we tend to underestimate how differently we will act when we are emotionally aroused (the "hot-cold empathy gap").[1] The you who planned the session and the you right after a loss may decide differently.
- Deciding in advance "if X happens, I will do Y", linking a situation to an action (an implementation intention), was associated with better goal attainment across many studies pooled in a meta-analysis (the pooled effect was medium to large).[2]
- Prompting people to monitor their progress toward a goal, for example by recording it and looking back at it, also promoted goal attainment in a meta-analysis of experiments. The effect was larger when progress was physically recorded or shared with others.[3]
These studies mostly looked at goals outside trading, such as health and study habits. We cannot say the effects carry over to trading at the same size. Still, the general direction, decide in advance, record whether you kept to it, and look back, may be worth trying.
Log just three things
If you try to write a lot, you may find it hard to keep going. Start with these three for every trade.
1. Did you keep your rules? (yes / no)
You don't need a reason. If unsure, mark "no".
2. How you felt when you entered
Pick from a short list you decide in advance, such as "as planned", "rushed in", "trying to win it back" or "got greedy". Using the same words every time makes counting much easier later.
3. Today's loss, and how far you are from your limit
If you set a daily loss limit, enter it in the daily trading tracker, then tap after each trade and enter the amount of each win or loss, to see how much room is left. You can turn your limit into an amount with the daily loss limit calculator.
Count after a week
After about a week, put these side by side:
- How many trades kept your rules, and how many didn't
- The total P&L for each group
- Which moods came up most when you broke a rule
- What time of day and which trade of the day your rule breaks tended to happen on
If you have your P&L list, paste the "kept" and "broken" trades separately into the trading stats calculator to compare average P&L and win rate.
Keep in mind that with only a few trades, a difference can show up by chance. Worse results on rule-breaking trades do not by themselves prove that breaking the rule caused the loss. What matters more than the size of the numbers is noticing your own patterns, such as "I break rules after two losses in a row" or "it happens late at night".
- If I lose two trades in a row → I stop opening new trades for the day and write down how I feel
- If I think "just one more" → before entering, I check today's loss against my limit, out loud or in writing
- If I want to push my stop further away → I place the stop as an order before entering, and never move it further away after that
- If I break a rule → my next trade uses a smaller size than planned
What fits differs from person to person. Decide what works for you.
If it gets hard
If losses are wearing you down, or you feel you can't stop even when you want to, you don't have to deal with it alone. Many countries and regions have services you can talk to about money worries or gambling-like habits. Searching your country's name with "gambling help" or "debt advice" can help you find one. If you feel low, a doctor or local health service is also an option.
Sources
- Loewenstein, G. (2005). Hot-cold empathy gaps and medical decision making. Health Psychology, 24(4, Suppl), S49–S56. https://doi.org/10.1037/0278-6133.24.4.S49
- Gollwitzer, P. M., & Sheeran, P. (2006). Implementation intentions and goal achievement: A meta-analysis of effects and processes. Advances in Experimental Social Psychology, 38, 69–119. https://doi.org/10.1016/S0065-2601(06)38002-1
- Harkin, B., Webb, T. L., Chang, B. P. I., Prestwich, A., Conner, M., Kellar, I., Benn, Y., & Sheeran, P. (2016). Does monitoring goal progress promote goal attainment? A meta-analysis of the experimental evidence. Psychological Bulletin, 142(2), 198–229. https://doi.org/10.1037/bul0000025