We’ve all been there, we place a trade and all of a sudden, seemingly out of nowhere, you may not even notice at first, but, feelings arise in your body. When we experience a psychological challenge in trading often times this brings up an emotional response to the problematic situation, and the next thing you know, you’re breaking your rules – you don’t have a trade plan – you execute poorly. You may be moving your stop-loss or you may not even have one, and your emotionally attached to the trade. You’ve made similar mistakes countless times, yet you seem to be repeating them again.
Only by becoming aware of our thoughts and emotions leading to the episodes of poor trading can we intervene. We do this by getting into the habit of paying careful attention to our own patterns (practices like mindfulness meditations do help) we begin to notice what fuels our addictions and compulsions.
Market mastery and self mastery go hand in hand; working on ourselves can be the best way of working on our tradingBrett Steenbarger
1. If you approach it correctly, Pain is a signal
If you develop reflective habits to the psychic pain you feel and do not try to avoid or suppress it, you will experience an acceleration in your growth and development. Pain exists so you can find solutions to the problem, if you approach this correctly and are able to reflect when you are in pain or even after the fact, then you will not miss-out on the lessons that these reflections provide.
Ray Dalio ‘Principles’ — Pain + Reflection = Progress
Pain is there for a reason and it is unavoidable especially when going after ambitious goals. Believe it or not we are lucky enough to feel that kind of pain, and if we approach it correctly we can use it as a signal to find solutions and crush our goals. Most people will shut this pain off and seek to avoid it as they have a tough time reflecting on this when they are in the middle of it. When the pain passes they will focus on something else instead, thus hindering their development and learning.
2. It starts with self-awareness
Take a step back and become an observer, only when we disconnect and are truly no longer immersed in the situation will we be able to control those patterns and ensure they don’t control us.
Keeping a journal and tracking our trading mistakes and pscyhology (factors such as depression, overconfidence or frustration) enable us to detect patterns that sabotage our profitability. Only when we become aware of these repeating patterns can we do a root-cause-analysis and figure out the triggers that set us off. We are then able to better anticipate these patterns next time and rechannel our emotions and actions. For example, I have learned from experience that I need to take a break after a string of losses and that I need to process my self-talk, as if this is not reigned in, the compulsion to recover losses kicks in and this will usually make the situation worse, in the best case trying to get back to that psychological break-even level.
Virtually nothing goes according to plan because no one plans for the things that go wrong.
When we chart the situations, thoughts, and emotions leading to episodes of poor trading, we become increasingly aware of our own patterns. Very often, it’s a handful of triggering situations that lead us to make our behavioral mistakes in markets. Once we clearly recognize those situations, we become sensitive to them in real time and can catch them before they have their triggering effect. – Brett Steenbarger
Once we see the light, we realize that it is much more effective to face the painful realities of our mistakes, problems and weaknesses – you won’t want to operate in any other way! It’s just a matter of getting into the habit of doing this, and if your able to do this in real-time, even better and If not, it’s just as valuable after the fact.
3. If You Want Better Results, Create a Better System
If you want to stop wasting energy and operate at peak efficiency you need to create a better system. When it comes to actually sustaining a new habit to produce the results you want, most people fall very short. This is why peak performers focus on systems instead of goals.
Sustaining new behaviors without first building a proper foundation and a system will mean you will be fighting a losing battle, wasting immense energy and time in the process. When you build a system and the habits around it, you don’t have to waste the mental energy deciding what to do. Create a system that enables you make a little progress every single day, don’t waste immense amounts of energy trying to cram and doing everything at once.