skip to main content
Trading Education Posted by Team Topstep January 6, 2022

What Makes Us Chase Trades?

Screen and Mobile Trading

By: FairValueTrader

During my twenties, I was fortunate to be surrounded by many older mentors who graciously shared their wisdom and life experiences. I recall one instance when one guy shared insight using the contrast of fishing and hunting metaphorically. I was reared in a rural environment, but I never took to either of those sports; however, for most of us, the object lesson can still relate regardless of our personal interest in these hobbies.

When encountering the impulse to be impatient, this man informed me that one key to enjoying and receiving the most out of life is to approach it as if it were fishing. To him, hunting was a more aggressive tactic where dogs were sent out to sniff a trail and chase the game. This effort often requires a tense and adrenaline-filled endeavor where you constantly try to navigate where you believe the target will go.

Meanwhile, fishing, to this man, was the opposite. He would sit on a boat, cast his line into the water, relax, enjoy the sunshine, take a nap, do some reflecting and thinking, read a book, and meditate, among other things. He stated that you feel a tug at the line now and then, your target comes to you, and you reel it in. Then, if it’s not what you want, you throw it back. 

Trading Is Like Tracking 

This metaphor is hardly perfect, but I believe that the concept makes sense. To the readers of this article, this lesson is all the more pertinent when applied to trading. While there are nuances to each scenario, you likely already get the point. 

Some approach trading like a tracking game through a forest, constantly trying to figure out where it is going by determining where it has been. It’s an aggressive approach that continually leaves the hunter on the move. For some, this type of trading may serve well; however, it’s a detrimental lifestyle for others. 

Today’s topic is about chasing the market, something that nearly all of us tend to do from time to time and that others engage in as a habit. We all know the trap of chasing, and when we inevitably get burned from chasing after trades, we begin to consider the man who is fishing and relaxing, who is patiently letting the trades come to him. 

Recognize When You’re Chasing 

It’s hard to sit idle for many of us, and sometimes, we might not even know we have chased the market until it’s too late. So, therefore, the first question to address is, how do you know when you are chasing after trades?”

The answer is complex and simple. Trading becomes a series of psychological games. It’s crucial to know yourself because you know the kind of games your mind plays. I adapt Sun Tzu’s sayings to fit trading. He says, “If you know yourself and your enemy, you need not fear the outcome of 100 battles.” The same is true with trading; knowing yourself and your market is the foundational principle of success. 

In 1964, the popular Games People Play was published, a bestselling book on the psychology of human relationships and interactions. Well, as traders, we also play games with ourselves and our markets. Below is a list of internal games we play that prompt us to chase markets. 

Feeling Left Out   

The market may be moving, and you know others who are trading, but for whatever reason, no trades have been on your radar today. Eventually, a psychological game begins to play out when staring at screens. You tell yourself that if you don’t take this next opportunity, there may not be another one.

I’ve played this trading game, and I’m sure you have as well. Let’s consider the premise of this game when applied to other facets of life. I have seen persons enter into marriage because they used the same reasoning. “If I don’t marry this person, there might not be anyone else,” or “my biological clock is ticking. The time is now.” Don’t get me wrong; I’m not critiquing anyone’s relationships. However, I think we are all aware that when we base decisions on missing out, we approach the challenge from a position of weakness and fear rather than that of strength. 

The same applies to trading. When taking trades because you don’t want to be left behind, chances are you are chasing the market. This approach will likely fail you over the long haul.

You Can Turn Any Trade Into A Winner

This is another game people play. I don’t have a vendetta about relationships, but they provide a clear and applicable analogy because it’s something most of us are familiar with. Sometimes, we believe we can change another person and turn them into a “winner” for us. However, when we are in a clear frame of mind, we likely know how difficult, if not impossible, such a task truly is. 

This game also applies to trading. But, again, this approach is based on weakness rather than strength, and your account balance is going to be your best indicator of that when you trade this way. You are likely a chaser if you are approaching the market this way!

The Quick Uneasy Feeling 

I’m sure we all know this feeling—as soon as we enter a trade, we don’t feel good about it. Sure, this may be because of a lack of confidence at times. But, if that’s the case, then you still shouldn’t be trading until you can rebuild that confidence. 

However, there is something more profound about the “gut feel.” Science informs us that feelings can be a response to subconscious patterns that are cognitive but are something we may be unaware of. In other words, there is something instinctive when trading, about fear. Our feelings may be a response to something that internally we know. 

Although fear is better than unrealistic confidence, you can’t trade being afraid. The best thing to do when you get into the trade and feel uneasy is to plan to get out. Either exit immediately or set the strictest risk parameters. Why? Because it may be your internal indicators telling you that you are chasing the market. 

Disregarding Your Plan 

Perhaps the most obvious indication that you are chasing the market is when you compromise or abandon your plan. This does not always come about in the most obvious ways but sometimes occurs through subtle decisions that have a considerable impact. 

An example might be that you are constantly trying to move orders and get fills, even at prices you didn’t originally intend or desire to. Instead of fishing for trades, letting them come to you, you become a hunter, trying to chase down your prey. Aggressive techniques may work for some traders; however, in my nineteen years of experience and observation of good and bad traders, I’ve found that the traders who have the longest and most stable careers are the fishing type that allows trades to come to them.

Of course, sometimes compromising your trading plan is not so subtle. We’ve all had experiences, especially early in our careers, when we suffered a total meltdown and learned the importance of maintaining a solid rule-based system.

Wrapping It Up 

In conclusion, chasing the markets can be a real problem, often stemming from thinking about the winners we may be missing out on rather than the losers we may be entering into through our less filtered choices. But remember, when trading responsibly, you can immensely improve your financial situation. 

However, on the flip side, when you trade irresponsibly, the markets create a casino effect, meaning they bring out gambling characteristics that eventually result in disaster. 

The next article will discuss ways to avoid and counter the urge to chase the markets. In the meantime, remember during the trading day to listen to yourself and begin to ask what kind of games your mind and emotions could be playing with you. Until next time, trade well!