Thanks to Layla Andrews for this:
Paul Good, a clinical psychologist in San Francisco, developed 11 warning signs that may reveal whether an investor is actually a gambler in disguise. Anyone who exhibits five or more of these signs may have a gambling problem.
1. High-volume trading in which the “action” has become more compelling than the objective of the trade.
2. Preoccupation with one’s investments (e.g., excessive studying of investment newspapers or websites, thoughts about the market that interfere with work or one’s social life, constant calls to one’s broker).
3. Needing to increase the amount of money in the market or the “leverage” of one’s investments to feel excited (e.g., using options or future contracts, borrowing on margin).
4. Repeated unsuccessful efforts to stop or control one’s market activity (e.g., drawing on accounts previously declared off limits, contradicting or changing limit orders on losses or gains).
5. Restlessness or irritability when attempting to cut down or stop market activity, or when cash is accruing in one’s account.
6. Involvement in market activity to escape problems, relieve depression, or distract oneself from painful emotions.
7. After taking losses in the market, continuing to take positions or increasing one’s position as a way of getting even.
8. Lying to family members and friends to conceal the extent of involvement in the market.
9. Committing illegal acts, such as forgery, fraud, theft, or embezzlement, to finance market activity.
10. Jeopardizing significant relationships, one’s job, or educational or career opportunities because of excessive involvement in the market.
11. Relying on others to provide money to relieve a desperate financial situation caused by gambling in the markets
Whenever I hit a drawdown period, which happens less and less often, by the way, I always revert back to basics. This video by Andrew Hwerdine is still my favourite. Why? Because it reminds me how simple trading can be, and also that entering on lower timeframes is really only about improving risk to reward, even though the trade setup remains the same.
I hope that this inspires you as much as it does me.
Could you be sabotaging your own success in trading? Here is a great, and short piece that may feel familiar to you- enjoy 🙂
Behavioral Patterns That Sabotage Traders – Part One
Brett N. Steenbarger, Ph.D.
Although I do not maintain a private practice of counseling/coaching for traders, it is perhaps inevitable that traders would contact me for assistance after reading my book on The Psychology of Trading. Once in a while I take on a project of working with a group of traders because of the opportunity to push the envelope and use psychology to improve their trading performance. In the past few years, I would guesstimate that I have gathered personality questionnaire data and assisted over one hundred traders.
That’s a decent-sized sample, and provides me with worthwhile insights into the minds of traders and the problem patterns that interfere with their trading. Below I outline a few of the things I have learned from questionnaires and interviews with individuals who are trading for a living.
- Most trading problems are varieties of performance anxiety. Performance anxiety occurs when a performance that is usually automatic becomes the object of excessive scrutiny. This attention to the performance creates an interference effect, in which the performance can no longer flow naturally. Such performance anxiety frequently interferes with athletic performance, public speaking, sexual performance, and test taking. Whenever fears about the outcome of a performance dominate the performance, outcomes are apt to suffer.
- Performance anxiety occurs as much during times of market success as during times of market loss. It is not at all unusual to find traders who are good at taking (appropriate) losses, but who become fearful when they book a gain and take profits prematurely (i.e., prior to reaching their profit targets). Interference effects following strings of losses are no more debilitating than interference effects from pressure that traders feel when they are making money.
- Traders commonly try to replace negative self-talk with positive self-talk during trading. This is a mistake. When traders are immersed in the market and focused on the screen, they are not engaging in self-talk at all.
- Perfectionism is the most common source of performance anxiety among traders. Traders tend to be achievement-oriented and often set lofty goals for themselves.These performance goals contribute to tension when the goals are not met. In general, it makes sense to replace performance goals with process goals. Instead of setting a goal of making $250,000 a year, a trader should, for example, set a goal of following a trading plan (entries, position sizes, exits) on 90+% of all occasions.
- Perfectionism leads traders to overtrade. Overtrading is the most common source of losses among the traders I’ve interviewed. Traders overtrade when they feel internal pressures to make money that blind the trader to what is happening in the markets at the time. Trading when volatility is low, trading outside one’s trading plan or strengths, trading to make up a loss, and trading imprudently large size are examples of overtrading.
- Traders that master performance anxiety at one level of size (e.g., 5 contracts) frequently re-encounter it once they meaningfully increase their size (50 contracts). We generally calibrate our emotions by the dollar amounts we make or lose. This makes a fifty contract trade much more difficult for traders than a five contract trade, even though the setups may be identical.
- Traders often think they have worse psychological problems than they actually have. When performance anxiety patterns have interfered with trading for a considerable period of time, traders often become convinced that they have deeply-seated emotional problems that need intensive psychotherapy. Often, the self-perception that one is damaged—that one is emotionally unfit—is a larger problem than the performance anxiety itself, which is a very solvable problem.
To be sure, there are problems other than ones related to performance fears that can interfere with trading. Many of these are described in my book. The unique thing about performance anxiety is that it can afflict highly successful traders every bit as much as rookies. This is because the root of much of the anxiety—perfectionism—tends to be present in the most achievement-oriented and successful individuals. It is truly a double-edged sword.
Somewhere between the extremes of performance pressure and complacent laziness is a happy medium where traders can focus on self-improvement without sabotaging their results. Trading is like dating: You want to keep initial expectations reasonable, enjoy it while it’s happening, and learn from it once it’s over. In the second and final article in this series, I will take a look at strategies traders can use to overcome performance
Brett N. Steenbarger, Ph.D. is Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY. He is also an active trader and writes occasional feature articles on market psychology for MSN’s Money site (www.moneycentral.com). The author of The Psychology of Trading (Wiley; January, 2003), Dr. Steenbarger has published over 50 peer-reviewed articles and book chapters on short-term approaches to behavioral change. His new, co-edited book The Art and Science of Brief Therapy (American Psychiatric Press) is due for publication during the first half of 2004.
6 WAYS TO TRANSFORM YOUR TRADING EXPERIENCES
In Quantum science, Dark matter, by definition, is unseen, and almost impossible to detect, but its existence is implied by its measurable impacts on visible matter. I like to think of all those little things I don’t see, that effect my trading negatively, as my personal dark matter. The experiences that every seasoned trader has as they learn to trade are universal, they only differ in their individual intensities; Risking too much, chasing trades, greed, punishment, glass ceilings, elation, depression, loss, shock, bulletproof- do these sound familiar?
The truth is, trading successfully is a learnable skill. It really is. However, there are key areas where we all need to be vigilant and forever focusing on improving. Depending on who you are, some of these areas will be easier than others. Below are all the key areas I feel are of primary importance to get right first, in order to change your subsequent trades:
1. Turn your Faith into Belief
This is a combination of several tricks. Understand what conditions your strategy needs in order to succeed first, and then back test this, even manually, in order to watch how it unfolds under those conditions, and in order to prove to yourself that it works- build up a belief by learning that your strategy will succeed if entered under the correct conditions, managed properly, and applied consistently. People have behavioural patterns, don’t they? And trading is really just people, in fact, crowds following each other, right? So, it follows that trading is maybe not as random as it seems- all we do is study and learn those crowd behavioural patterns.
2. Know Thyself
Know YOUR dark matter- what is your relationship with money? I had an unconscious i.e. hidden from my conscious, belief that I would never really make big money- this translated in so many small ways into self-sabotage, not even just in my trading, but in my career selection, lack of money management, and even how much I valued my services and skills. Once I discovered and conquered this, my BELIEF of how much I could earn has changed, and it changed my life in all other areas- it added to my self-confidence.
3. Trade what you see
It is my personal experience and belief that technical analysis is the only way to trade. It is cold, and calculating, and therefore lends itself to trading perfectly and unemotionally, wouldn’t you agree? Fundamental analysis has one fatal flaw- it depends on data collected within a multi-complex financial ecosystem, that is ever-changing, and which produces compounded effects and results. The exact outer-limits of this ecosystem cannot truly be defined, that is, we do not know what we don’t know. What data is missing, that we aren’t aware of? And even if we have it, how do we put it all together correctly?
Instead, let items such as the news go, and replace it with FAITH in the fact that the charts will show you the way, even if you don’t like it. With time, and effort to learn to read and understand what a chart is telling you, your faith will turn to BELIEF. Understand this- the chart is desperately trying to tell you, with every bar, what its intention is and where it is going- the question is, are you listening? Master the skill of technical analysis.
4. Control your risk
We cannot control many things in life, except our risk per trade. So, control it. If you’re nervous, risk less. 1% is considered universally acceptable, and 3% is considered the most aggressive. But, nothing stops you from risking less than 1%. On two of the funds I trade, my average risk per trade is between 0.2 and 0.5% per trade, so that my total risk in open trades doesn’t not exceed 2.5% at any one time. (NB. Have you ever doubled your risk on your next trade, in order to make up for a recent loss? Yeah, don’t do that anymore. Ever again).
5. Protect what you have
Understand this- the stop-loss’s sole purpose for existence is to limit losses to your account. It lives to protect what you already have in the account, so use it to protect what have. Place your stop on the chart where it makes the most sense, in accordance with your proven strategy, not where you would like it to be.
6. Take the money – T.T.M
It isn’t profit until you bank it. How often do you have to watch a trade of yours go into profit, while you do nothing except bathe in the glory of your newfound wealth and how you’re going to spend it (which you haven’t banked yet, by the way), only to watch it get stopped out and your account to take a step backwards instead of forwards??! As a rule of thumb, once you are up more than 0.5% in profit, you need to be vigilant and thinking about that trade. If you have the option of a take-profit solution in your strategy, then you should definitely be considering taking some profit after 0.5% under today’s conditions. Almost certainly after 1%, and definitely after 2%. If you do this, you will see your account grow, and move forwards instead of backwards, and then, imagine how you will feel in the future, compared to the way you feel now when you don’t bank profits?