Expecting the Unexpected

We often times go about trading without giving much thought to the idea of actively anticipating what could go wrong. Patterns play out, orders get filled, prices move up and down in a smooth manner, etc. Even if a pattern doesn't play out the way we expected, they might still move in a predictable fashion counter to the trend you anticipated, allowing you to take a prudent action accordingly. This is the typical ebb and flow we expect to encounter in the course of trading.

But what if something totally unexpected happens, like a sudden price spike or decline, or news that you didn't anticipate that causes a halt in a stock? Or an order you could have sworn should have been filled, but failed to fill right before the position moves against you? These are moments that can get the best of us, and have a snowball effect on our accounts as one shaky decision (or perhaps equally as relevant, non-decision) can lead to another, and soon we're down an unexpected rabbit hole.

To avoid these mental quagmires, the best thing is the try to expect the unexpected. That's easier said than done of course. The point is, we must put forth the work in trying to envision and almost enact hypothetical scenarios which will call for certain actions. Secondly, we MUST then be able to actually follow through on those actions, trusting our reasoning behind such backup plans made during calmer/saner times.

To motivate you to actually follow through in these circumstances (and not make a senseless "exception" you'll regret later), remind yourself that these situations are the exception to your general trading patterns and outcomes. They're outliers, but they must be respected due to the disproportionate effect they could potentially have on your account. These trading circuit-breakers, whether they be a max loss threshold, decision to trade smaller size, or a decision to take a break from trading altogether to regroup and get better in sync with the market, are well worth the short-term pain you might feel in enforcing them.