You can’t win if you’re just trying to break even.
When day trading, have you ever taken profits sooner than you should because it made up for your losses the previous day? Have you ever increased your position size or the amount of risk you take on “temporarily” just to get back to zero? Yeah? Me too.
What is Break Even Mentality?
Break Even mentality is that itch in the back of your brain that tells you “If you can just break even on this trade, then you’re back at zero. It’s a fresh start.” It could cause you to exit a trade early only to watch the stock market carry that price right to your usual target. It might cause you to increase your position size so a smaller trade will get you to back to even. It might make you to take higher risk/higher potential profit trades hoping that the big payoff will get you back to zero. Then you’ve reset. You can start over from there.
How Can Break Even Mentality Affect Your Trading?
The truth is that you can’t restart from zero. Even if your break-even strategy works, you’ve now trained yourself to feel rewarded by bad trading. You’ve set yourself up for inevitable failure because these poor habits will never work in the long run.
What Can You Do About Break Even Mentality?
If you feel yourself getting into the break-even mindset, you need to take a step back from trading for a moment. You have to take a look at why you feel this way. Do you always follow a losing trade with a break-even style trade to make yourself feel better about the loss? Or maybe you try to make up for a losing day on the following day, or a losing week on a Monday. Whatever it is, you need to think about the big picture. Your goal as a trader is to stay in the game, and remain profitable in the long run.
After a big loss, or a series of losses, you should reduce your risk and position size. It may take longer to get back to zero, but that restraint and discipline will make you a better trader and increase the amount you can take from the stock market in the future.
Examine your trades. You should be keeping a trading journal and dissecting your trades daily. Learn to look at your trades in the mindset of what you did right and wrong, not whether it was a win or loss. Try to train yourself to feel satisfied with a loss because it was executed perfectly. Try not to think of the money lost.
This one is a bit more difficult, but try to restrain positive feelings from a winning trade that you know was traded poorly. Instead, figure out why it was a poor trade, and try to take corrective action to prevent yourself from trading poorly in the future. If you don’t, you may have won that battle, but you will lose the war.
It’s not the wins, but rather how you deal with the losses that will determine whether or not you succeed in the stock market.
Have you ever caught yourself trying to break even? If so, let us know how you felt & maybe how you learned to get over that type of behavior.
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