Chase a Trade and Lose the Edge
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The primary reason for chasing is because the trader was not proactive, but rather reactive. That trader was caught "off guard" by either unexpected news or a poor diagnosis of how the market would react to any potentially trade-affecting news once the news became a reality.
Do not confuse being proactive with being what is colloquially called being a pioneer. A trader who is a pioneer is someone who dives into a trade, most times one-way biased and un-hedged with the odds against them. Some traders pioneer trades because they confuse their approach with that of being a contrarian. Pioneering and contrarian trading are mutually exclusive.
The contrarian hedges and moves, while proactively into a trade, they do so in a probing manner. They never go "all in" like the poker playing buffoons we see on the boob tube. Instead they time the odds to being in their favor as they average into the opening up of a trade.
The proactive trader never chases any trade that is about to be opened. They either take a pass if it moves quickly away from their pre-planned price, or they slightly alter the pre-planned price as they average into the trade. They never average into the trade if the opening trade is considered to be too far away (in price) from the pre-planned price. Instead they move on to the next trade that sets up.
Caught off guard is a risk all traders run as nobody can anticipate every outlier that becomes fact. However, the potential for any outlier is most times a known potential. Only the market's reaction to the outlier becoming a reality is in question. Thus, the more the trader studies the market, the news or whatever is thought to be possibly in play, the more the trader will not be caught unaware should the outlier become a market mover.
The only time that it makes trader-sense to chase is when the trade must be closed. When the experienced trader is caught "long and wrong" or "short and getting shorter" the tactic should be one of immediately either closing the trade to cut the loss or hedging it completely. Thus, the risk morphs from being an unknown to one of being 100% controlled, and thus limited and understood.
Chasing a trade is never pleasant and should not be so. Chasing can be avoided if: 1) the trader is proactive; 2) the trader does not allow negative gamma to enter the trade set up; 3) the trader has done the required homework; and 4) chasing is the accepted tactic only when the trader must close the position.
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