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What are you thinking about when you initiate a trade? When the market moves against you? When it hits your stop? When you have a large winning trade?
Are you still making mental errors in your trading even though you have a tested system and conservative risk parameters? Do you feel like you are sabotaging your trading and that if only you followed your system you would be much more successful? These thoughts are pernicious because you have a very strong attachment to your trading success. Becoming a successful trader is extremely important to you. You've spent thousands of hours and dollars learning, you spent blood, sweat, and tears. You want with every fibre of your being to trade successfully and make lots of money. This is the trader ego and you won't let anything threaten this vital part of your self-identity.
This has been a continous problem for my trading. I would feel stress even with a well defined plan in simulation mode if I wasn't winning on that trade. Afterwards I would feel bad about this because intellectually I know that a trading plan is proven out over many trades not one. What I didn't realize was that any trade that wasn't a winner was threatening a crucial part of my self-identity.
If you've ever thought "I need this trade to be a winner", "I don't feel like taking this trade I'm down too much already today", or "will I ever be a successful trader" while you were in a trade you aren't alone. These types of thoughts are initiated by the ego which is trying to protect us. It wants us to wait for a "sure thing" and avoid "too many losses". Often these desires conflict with your trading plan. The best trades rarely start out as a "sure thing" and "too many losses" is irrelevant to the market. In fact great trades usually emerge from frustrating market conditions.
Often these types of thoughts creep into our consciousness and we aren't even fully aware that they are taking control of us. Causing us to hesitate, causing us to act prematurely, causing us to break our rules when we had no intention of doing so.
If we could only recognize these thoughts in the heat of the moment while we were trading we would be much better able to reduce this self sabotage. When we review our actions outside of trading hours and we are calm and rational it is easy to see we should not listen to these negative thought patterns. But when we are actually in the action our rational minds can be deceived.
For myself I've found two techniques to be extremely helpful in deconstructing the trader ego. First I listen to a mediative mantra that reinforces good trading techniques. See the links below for mantras and other resources.
Secondly, while listening to these mantras (preferably right before you intend to trade) visualize your trading setups vividly. Imagine what the market is doing right before you enter the trade, imagine all your signals lining up, imagine how the candlesticks or bars look, imagine placing your stop loss and your target, imagine the market hesitating after you enter, imagine not knowing what will happen next, imagine the market moving towards and then hitting your stop. How do you feel? What is your inner voice saying?
Now imagine the next setup. Imagine you entering that next trade based on your method without hestitation. It doesn't matter what the last trade or series of trades did. This trade is a valid signal so you enter it and manage it accordingly. Even though your heart races a bit with emotion you take several deep breaths. You cannot control the market only how you respond to the market. This trade also moves toward your stop. Do you exit prematurely? No. Because that is not in your plan. Winning traders recognize that they will have many small losses and taking losing trades is part of being a winning trader. The market reverses and now moves back to break even and then into profit. You do not rush to get out with a small profit because that is not in your plan. Now you are up in a large profit. Your plan may tell you to move your stop to break even. However, even if the market moves back towards your stop you follow your plan. Eventually, this trade ends up being a large winner. You followed you plan. But you don't have any sort of pride in having a winning trade. The only satisfaction you feel is executing your plan.
Listen to a postive trading mantra (or make your own) and visualize following your trading plan every day for at least 30 minutes before you trade. I can attest that this process has helped my trading tremendously. Work at this consistently until you can transform the negative self talk that hinders your trading into positive self talk that reinforces your desire to follow your trading plan.
Excellent subject . All the things you described were happening to me in the not do distant past , not so much now thankfully . It did take a lot of positive affirmations and becomming sick and tired of short changing my winners , fighting the market , mistrusting my method etc. Finally I learned to trust myself and not get "high" on any given trade and when I stop out all it means is its time to be ready for the next trade .
The only way I was able to deal with by ego was remove myself from the screen. I tried many techniques but was like trying to keep an monster in a bottle. I could keep my hand over the bottle for a while but eventually my hand would come off and out would come the monster. So I had my system coded and now autotrade. You can still intervene in an AT system but it gave me just enough separation to remove my ego.
Not everyone has to go this route but for the hard ego cases like me it is paramount.
"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
@Ericj - Great point about being "sick and tired of mistrusting your method". I hear too often from traders who want to eliminate their emotions. However, I strongly believe that eliminating your ego/emotions is not the answer. Disgust can be a strong motivator that can help break us out of a vicious cycle of negative self talk and ego defense.
@liquidcci - It sounds like you have a great deal of trust in your methods and you leave them alone when they are working. I can't tell you how many would be automated traders I know who think that trading psychology doesn't apply to them. When I ask them if they have the ability to turn off their system they say yes. Getting your head right still matters for automated traders.
I agree trading psychology still applies. You can turn it off get out of a trade early, go watch it and jump in things you should not. An AT is how I actually deal with my psychology. It provides other benefits but greatest being putting a mental barrier between me and my trades. My mind game is to leave it in the machines hands.
"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
I agree that paper journalling is certainly a very good way to help certain psychological issues. Personally I've found even greater value in video capturing my trading day. Before, during, and after trades I state not only what the market is doing and how I plan to act but also how I feel about it. Myself and two traders I know personally review the video at the end of the day and this has been a very helpful tool.
Thank you, I like this topic. One thing I have found that greatly involves my ego in trading decisions is what I call the "trap of prediction". Once you make a prediction, you have involved your ego - you have basically attached whatever part of yourself cares about being right or wrong to the future outcome of what you are trying to predict. On a fundamental level, the future is unpredictable but many traders (myself included) believe that they must make a prediction in order to place a trade or to trade at all. I find this to be the flashpoint between good trading and forced trading.
Discretionary decisions in trading (and this would include whether to turn an AT system on/off) are made best from a detached, open-minded mental state in which we let go of the need for certainty and simply observe what is happening and place bets when we determine the expectancy to exceed a certain threshold. When we predict, we attach the ego and involve our emotional self in the outcome of the action we take.
Another way to help remove ego is to attempt to focus on HOW we trade instead of the outcome of our trades. A so-called "process orientation" as opposed to an "outcome-orientation". Focusing on doing analysis correctly, placing trades under the conditions that correspond with our plan, and managing those trades according to the method we've determined to have the highest expectancy. Continually reinforcing the attachment of ego to how well we follow our process rather than our outcome - telling ourselves "I did great today because I traded the way I've determined to have the highest expectancy" rather than telling ourselves "I did great today because I made money".
I started a thread earlier on this topic HERE if you're interested.
(I know this is no secret to many but writing this stuff down helps reinforce this thinking for myself)
Seek freedom and become captive of your desires. Seek discipline and find your liberty. - Frank Herbert
@Surly - glad you liked this topic and thanks for the link to that thread. I totally agree that being focused on process rather than outcome is the best way to ensure that our ego doesn't run amok.
