In practice
After a loss, especially one that feels unfair, the urge is to get the money back immediately. The next trade is taken without a setup, usually larger than normal, and judgement is at its worst.
Traders build in a circuit breaker: a pause after any loss, a stop for the day after two or three in a row, and a daily loss limit that cannot be overridden.
What to watch for
The market does not know or care what you lost. A trade taken to recover a loss has nothing to do with the chart, and a string of them is how a single bad trade becomes the worst day of the year.
Related terms
3 terms- Daily loss limitA hard cap on how much you can lose in a day; hit it and you stop trading until tomorrow.
- TiltA state where emotion has taken over your decisions; the only good trade on tilt is no trade.
- FOMOThe urge to jump into a move that is running away, usually with a poor entry and too much size.