A reminder for when trading seems overwhelming.

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.

Adam

Self-sabotaging behaviour, an article by Brett N. Steenbarger Ph.D.

Could you be sabotaging your own success in trading? Here is a great, and short piece that may feel familiar to you- enjoy ūüôā

misc-jackie-chan-l

Behavioral Patterns That Sabotage Traders ‚Äď 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‚Äôve 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‚Äôs 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‚ÄĒthat one is emotionally unfit‚ÄĒis 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‚ÄĒperfectionism‚ÄĒtends 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.