Day Trading Psychology: Is This Foe Sabotaging You?

WORSE THAN FEAR/GREED:

Is There a Day Trading Psychology Foe More Cunning and Dangerous Than These?

There’s a foe that lives close to you.

 

It’s a pesky foe, one that seems to feed off the kinds of people who are attracted to the idea of day trading.

Day Trading Psychology FearIn fact, this foe is nipping at me as I write this.

 

When you first learn about trading psychology, you’ll often hear quite a bit about the dual trading antagonists of FEAR and GREED. 

 

FEAR – the emotion that arises when your trade immediately goes against you and you realize that you need to close a losing trade. It’s the emotion that arises when you get an entry signal but your past experiences with losing are telling you to stay out. It’s the nagging voice in your head that tells you to keep trading that day so that you can cover the week’s losses.

 

GREED – the emotion that waves its cheerleading pom-pom’s telling you to let a trade “GO GO GO!” and hold on past your take profit target. It’s the delusion that believes, “It’s going to the moon!” without defining how far away that moon is or where the boundary lies that signifies an “overshot.”

day trading psychology greedYou need to be able to understand these two feelings.

You need to be able to recognize them as they occur.

And you need to be able to say to them, “I can feel you Fear/Greed, but I’m choosing my rules anyways.”

 

But they are not your true foe. 

 

There’s a more cunning adversary that sends FEAR and GREED your way. Those two are just the messengers.

 

Who is the monster that seeks to sabotage your trading discipline?

 

Perfectionism

You see, you wouldn’t even feel fear or greed if you didn’t have a nagging belief that you ought to trade with 100% accuracy and success every time you put on an order.

 

Who whispers sweet nothings about some lofty standard that exists beyond reality? Perfectionism, that’s who!

[What to read more of my reflections and advice about day trading psychology, be sure to check out my book, The Seven Habits of Successful Day Traders: A Quick Guide to Profitable Day Trading Practices

This blog post is actually inspired by a book I recently read from an author whose writing style I highly admire.

 

Jon Acuff’s Finish: Give Yourself the Gift of Done, is a gripping and inspiring read about how to wrestle and win against the greatest threat to actually achieving our goals and getting things finished: Perfectionism.

 

(By the way, I am not an affiliate of Jon Acuff, I am sharing this recommendation because it’s something I find very valuable and want to pass on to my mentees and students)

 

In Finish, John personifies Perfectionism (as I have done here) as a persnickety and thwarting bedfellow to the best of our dreams and aspirations. He explains throughout the book how Perfectionism tells us a variety of lies in order to prevent us from moving forward and taking action.

 

Some of Perfectionism’s lies include:

 

Quit if it isn’t perfect.

 

Your goal should be bigger than average.

 

You need to wait to do X until you do Y.

 

Among an assortment of other lies that lead us to procrastination, being hard on ourselves, and ultimately failing to achieve what we originally set out to do.

 

As I was reading this book, I thought to myself, “Oh. This is spot-on. Not just for most goals, but also trading! This is exactly what happens when we make assumptions about continuous positive return.”

Perfectionism’s Role in Day Trading Psychology

Perfectionism leads us to believe that we ought to be able to make a regular profit within a few weeks of learning how to trade.

 

Perfectionism fools us into thinking that we should expect an 80-100% win rate.

 

Perfectionism amplifies our feelings of let-down and self-hatred when we make endless mistakes.

 

Instead, we need to get realistic.

 

Let go of perfectionism and choose to keep showing up. Forget about some clean, linear straight line of progress with your trading skills and your total account size. 

 

You might have profitable weeks followed by losing ones. If you’re just starting out, it can easily take two to three years to see your total net earnings in the green. 

 

Just when you think you’ve mastered taking your stop losses or sticking to your rule of three trades or less a day, one day your discipline goes haywire and you do some considerable damage to your account.

 

But before I leave you feeling deflated or hopeless in the face of what is a wild and unpredictable plight ahead, let’s go over a few ways we can make authentic progress with our day trading psychology without letting perfectionism drive the train.

How to Apply These Lessons to Your Day Trading Psychology Plan

Pointers for making realistic trading goals (as inspired by Acuff’s suggestions for stifling Perfectionism):

  1. Cut the goal in half – If you started out with a goal to make 20% off of your account each month, try cutting it down to 0%. Or if your goal is to grow your account to $50,000, trim it down to $25,000 first. In this way, you can take smaller baby steps to your larger long-term goal.
  2. Double the amount of time you are giving yourself to achieve your goal – if you are aiming to be profitable in the next six months, how about stretching that out to at least a whole year (or likely longer)? 
  3. Add on new routines and new trading tactics a little at a time – Through the discipline resources I offer I tend to make a lot of recommendations for different actions to take to improve trading discipline. Instead of trying to do everything at once, pick a few suggestions at a time and see if you can implement them well for a while before taking on new tactics and routines.
  4. Have fun on the journey– It may seem obvious that you would hopefully find some enjoyment out of trading if it’s the endeavor you’re choosing to use to make more money in your life, but once we get into “goal mode,” humans tend to get serious. Perfectionism would rather see you stressed out and doubling down on your intent to profit from day trading. But introducing fun into your routine and your experience can help you stay more serene and avoid anxiety- which is an emotion that tempts us into making mistakes. Instead, allow yourself to stay curious, intrigued by the markets, and make your trading practice and work sessions more enjoyable. Personally, I like to play music when I practice, backtest, and even when I trade live. Trading memes can help you laugh at the problems a lot of different traders make. Always be responsible and diligent, but don’t forget to laugh and enjoy yourself!