We all have that one trade. It’s usually not a trade, but an investment. I know I bought TSLA at 12 dollars not long after the IPO and don’t still own it from that purchase. You think about the money, what it would be worth, how that might change your life and it haunts you. Why? Because the number one kind of regret we have is the regret of not acting. In this case, just not holding on.
But trading is not investing. And the biggest differentiation between trading and investing, is that you almost always have to exit. And it will never be perfect. And sometimes you’ll lose opportunities, and sometimes you’ll lose money. Sometimes you’ll leave life changing money on the table. Sometimes you’ll leave pocket change on the table and still feel frustrated. Frustrated that you didn’t hold to your target, frustrated that you didn’t do the hardest thing in the world, nail an exact top or an exact bottom. And no matter how ridiculous it is to think you’ll do that in trading, you’ll still feel mad at yourself.
But the main barrier to most people for exiting a trade without regret, is not feeling lack. And this is a hard truth to swallow when you’re striving for more money, more success, more of anything really. And it’s made even harder by the fact that if you had more money, then runners mean more financially speaking.
Imagine a scenario of two traders. One with $10,000 dollars, one with $1,000,000 dollars. They both enter the same trade with 20% of their account. The trade moves in their favor to the tune of 10%, at which point both traders sell 80% of the position and leave a 20% runner position.
The trader with the $10,000 dollar total account has locked in $160 dollars, and only has $440 net dollars in the position, even if it keeps going up another 10% (a fantastic return) he will only net another $44. Another 20% and he’s got an extra $88 dollars. He will wonder if it’s even worth his time.
The trader with $1,000,000 has locked in $16,000 in gains, and still has a net position of $44,000. If it goes up another 10% he’s adding another $4400, and another 20% another $8800 dollars.
These are massive differences in numbers. These are numbers that make one runner worth holding, and the other feel meaningless. These are numbers that make one trader think I should have held the whole position, while the other is moving on to the next trade. These are numbers that make people feel, now I have to get into another trade right away because that trade did not meaningfully change my life.
And therein lies the problem. When we trade from a place of lack, lack of resources, lack of gratitude, lack of prior successes, lack of self confidence, we will ALWAYS regret our exit. Because we will almost never nail a top or bottom, we will almost always have a feeling of I should have held, I should have sold 5 minutes ago, I should have I should have I should have.
There are essentially two types of exits in the market. One at our target, and one at a loss of support (i.e. a trailing stop). When we choose a trade entry, we should already be choosing our exit. This is the part of the trade that we see. Ideally we should always leave at least a runner with a trailing stop. And yes, even if it’s going to make you 10 extra dollars it’s worth it. Why? Because how you act when the numbers are small will grow you into the person that can act correctly when the numbers are large. And if you don’t train that part of your brain, your emotion and your composure, it will be harder to grow your account.
These numbers will be different for different people. You can regret $500 dollars as easily as someone else regrets $500,000. But it can still feel the same. Imagine how my life would have been different had I just. What about your life do you want to change? Can you change it? Will the extra money make you healthier in a way you can’t already try to change. Will it bring you more happiness in your relationships and in your perception of yourself? What is the number where that feeling ever goes away?
Trading is not investing, which is why so many people do both. One is a shorter term vehicle where you will have to exit. The other you have a lot longer to ever make that choice. Pick your entry. Pick your exit (target or trailing stop). Leave a runner. And trust yourself that you didn’t just miss the one life changing trade you will ever find.
