The Most Dangerous Time to Trade

After a winning trade is indeed the most dangerous time to trade. Whilst that may seem surprising to some of you, it has a scientific basis that we need to understand …

Ironically, as with any other form of addiction, like drugs, gambling, etc., dopamine gets released whether or not what you’re doing is good for you or your body. The very act of entering a trade, an event that previously made you money and made you happy, will release more dopamine in your brain, thus keeping the ‘high’ going.

For a trader, this means after a winner we are more likely to do and over-trade something stupid with our trading platform because our brains are subconsciously looking to keep the dopamine high going. When riding a dopamine high after a winning trade, our brains naturally perceive less risk in the market and that can cause us to deviate from our trading strategy.

Why we tend to lose after winning
After a winning trade is indeed the most dangerous time to trade. Whilst that may seem surprising to some of you, it has a scientific basis that we need to understand …

Have you ever noticed that after a solid winning trade you often lose money on the next one? Well, it may be something you can prevent, at least sometimes. You see, after a winner, there is emotion that can cause traders to want to jump back into the market without a signal being present.

After a winning trade, we feel good, there is no denying that and you can not stop it, and why would you want to? Dopamine is the feel-good chemical released in your brain (learn about dopamine here) when something happens that makes you happy, like a winning trade. The very act of entering a trade, an event that previously made you money and made you happy, will release more dopamine in your brain, thus keeping the ‘high’ going. In essence, we just need to understand our brain chemistry and learn that by filtering and following our plan we can hopefully be in a scenario where these releases of feel-good chemicals, like dopamine, are not causing us to become addicted to the feeling of simply being in a trade.

The brain will get what it wants, whether you lose or win, and as traders, we need to be aware of this genetic ‘flaw’. Dopamine is truly a double-edged sword that can either reinforce good habits or reinforce bad habits.

False-confidence and even addiction to the euphoria and the ‘high’ you get from winning are things that can end your trading career just as it’s starting to take off. After winners, we may literally invent or see patterns on the charts that are not even there; we convince ourselves into jumping back in the market, subconsciously.

The solution to this mistake is to ensure you’re only subjecting yourself to your edge, which needs to be a well-defined trading edge. Because you think a chart is about to do something, you need to follow a trading plan so that you are not simply entering on random whims of confidence or.

In essence, we just need to understand our brain chemistry and learn that by filtering and following our plan we can hopefully be in a scenario where these releases of feel-good chemicals, like dopamine, are not causing us to become addicted to the feeling of simply being in a trade.

Before we proceed, let me be clear, you can not avoid all losing trades, sometimes they are just normal statistical occurrences of your trading edge. What we are talking about here are the losers that you can prevent; the ones born of emotion, fueled by brain chemistry that you are probably unaware of and that you need a planned-out course of action to deal with …

Solutions
Now that you know why it’s so easy to lose money shortly after winning, it’s time to figure out how you will avoid this major pitfall in the future. The trick is to have some type of filter in place to catch yourself from making an emotion-fueled/ dopamine-fueled trade. Whilst it may sound cliché to once again talk about trading plans, their importance in this matter can not be over-stated.

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