Morning losses can affect the rest of the day's trading unless, of course, you step away from the screen in time...
This is discussed in a study conducted in 2005 on professional proprietary traders at the Chicago Board of Trade. For the main part of the analysis, 426 traders were selected, each of whom traded for at least 100 days and executed more than 1,500 trades per year.
The trading day was divided into two parts, and researchers observed how the results of the first half of the day were related to the trader’s behavior in the second half.
The study found that after incurring losses during the morning trading session, the probability that a trader would take on increased risk in the afternoon increased.
In addition, following morning losses, traders tended to engage in more aggressive trading, make unscheduled trades, and take uncharacteristic decisions.
Today, this behavior can be classified as “revenge trading” or an attempt to recoup losses.
Such behavior is linked to loss aversion and the break-even effect: when a person has already fallen below a certain psychological threshold, they begin to perceive their original target differently, and breaking even becomes the primary goal.
This is precisely why constantly monitoring P&L can significantly influence your decisions and perception of results, becoming an additional source of risk for your account balance.
Observe how red or green numbers on the screen affect you.
Don’t trade based on results, trade based on statistics.
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