The year-end P&L trap: why discipline often slips in the final quarter

As the year-end approaches, traders often find themselves in a challenging situation called the P&L trap. This occurs because discipline can easily slip during the final quarter of the year. During most of the year, the annual P&L is merely a record of decisions that have already been made. However, in October, traders start to think about what they must earn before the year ends. The market does not recognize this deadline, and it does not offer better opportunities simply because a trader's portfolio is below target.

According to Van Ha, a Financial Markets Strategist at Exness, "Markets do not know where a trader's annual target sits. The moment a required return changes which setups qualify or how much risk is assigned, P&L has stopped being a measurement and started acting as a trading signal."

Annual targets are useful for reviewing a business or measuring a strategy. However, they can become complicated when they serve as reference points for live trading. When traders are below their personal target in October, they may start asking whether a trade can close the gap instead of whether it meets the usual criteria. This required return influences the selection, frequency, and size of trades.

A small decision, such as taking a "B" setup or extending a losing position, may seem manageable at first. However, these small choices can accumulate and increase overall risk. Each decision may seem separate, but they all depend on the same view of inflation or interest rates. These dependent trades can lead to pressure, worse trade selection, and worse pressure.

The most dangerous trade is often not the oversized position that everyone remembers, but the first ordinary-looking trade that would not have been taken in July.