Friday, January 20, 2017

Main forms of self-sabotage when trading (and how to prevent them)

You have just closed a position with benefits and your self-esteem is in the clouds, you can boast of your winnings and you are ready to continue the streak. Suddenly come a few losing trades and your perspective already changes completely, you are ashamed of your losses, doubts about your ability as a trader and you feel bad about yourself. Do you dream ?: These feelings are very frequent, especially among beginner traders, and they end up making your emotions and your ego the ones that take control of your decisions, inducing in many cases to make mistakes and preventing you from fulfilling your goals.


How many times have you tried to do something without success? If you did an objective and realistic analysis of these "failures" you would surely realize that there is usually something behind you that you have done wrong or something you have not done. This is based on self-sabotage and unfortunately many times we do not even notice. Most of the time we attribute a bad result to luck, circumstances, blame others or justify ourselves thinking that what we have to do is too complicated. It is always easier to make excuses than to analyze and find solutions.

"After practicing psychiatry for many years I have come to the conclusion that most failures in life are due to self-sabotage" (Alexander Elder's phrase).

In this article we will analyze the 7 most common forms of self-sabotage that we usually commit when trading and how we can prevent them. These are common mistakes that many traders make and you can learn to save a lot of time and money:

1. Feeling of depression after a loss

It's easy to feel a little depressed especially after facing a couple of consecutive losing trades. It is also easy depending on your personality or mood you choose one of these two options: blame yourself and discourage you to open new positions or try to take the revenge as soon as possible.

Either of these options is bad. In these cases you should remember that trading is a medium / long-term way and that a couple of obstacles in the form of specific positions do not mean that the direction is not appropriate. There is no reason to blame yourself for the result of a particular operation. Everyone loses often, even the most profitable traders. It is impossible to hit 100% of operations. Even with a lower percentage of winning trades than losers you can have a profitable system if you earn enough on the winners and you know how to cut losers in time.

2. Being too critical

Virtually any trader has good and bad months. Facing the good months is always easier than the bad ones. In the bad months you tend to be hard on yourself. You feel like you've made mistakes and missed good chances. This causes stress or regret. You can lose confidence in your trading system or think you do not have what it takes to be a profitable trader.

You must learn to cope with losses (and also profits) from the most emotionally neutral position possible. Before any losing streak take a break and analyze if there is something in your trading system that is not working or is only due to specific circumstances of the market that are not under your control. If you think you have to change something do it but calmly, without going crazy and analyzing the results again.

3. Falling into overinformation

We tend to think that the more information we read the more we are learning and therefore the better we will act and the more benefits we will get. This may be more or less true in other aspects of life but in trading it is rather counterproductive.

Read thousands of strategies, trading books, opinions of other traders, ... many times what it will do is confuse you, make you fall into contradictions and saturate information (this is known as infoxicaciĆ³n).

Many times the most profitable trading systems are the simplest. At first it is imperative that you learn the basic concepts that you will need to invest but then the most important thing is practice. The best way to learn to invest without risk is to open a demo account with an online broker and start putting your knowledge into practice as soon as possible.

4. Risking too much

The goal of many people who approach the world of trading is to make money in the shortest possible time and investing a minimum amount. They fall into the trap of the false promises they can find in advertising some brokers and sellers of "infallible" systems to get rich instantly, ...

These mirages cause them to be launched into the void without parachutes and assume such a high risk that they can jump their trading account in the air instantly. No one is going to "liner" or withdraw in an operation. If you want to be a profitable trader take these ideas out of your head and return to the real world.

The key is first to learn and gain benefits little by little as you are having more experience. You must have realistic expectations and be flexible. It is not positive to set goals from the beginning of how many benefits you want to get as it is easy to fall into the temptation to open positions too large to meet these goals and the most likely result is a greater loss.

5. Impulsive need to open operations

Many traders feel uncomfortable when they have not found opportunities to open positions for some time. They believe that more positions equate to more money and not participating in the market away from their goals. That is why they tend to self-deceive and push themselves to operate when the time is not really right.

In other businesses, the formula for more effort and time spent equals more money, but this does not usually happen in trading. You have to be patient and wait long enough to find good opportunities that fit your strategy. Think of trading as if you were hunting, it does not make any sense to shoot aimlessly, wasting bullets that are not going to hit any target and that can only bring you problems. It is about that you search your prey with intelligence and only pull the trigger if you have high chances to hit the target. There will be days when you have to pick up your things and go home without hunting anything, but there will be others who can do more than meet your goals.

6. Take profits too soon

This is a very typical mistake that we have all committed once. When a position goes into profits, it is common to feel some fear and want to collect profits as soon as possible so as not to lose them. In the end you end up betraying the analysis you've done before opening the position and closing before reaching your goals. Break with your risk / reward rules, develop bad habits and you're hardly going to be profitable in the long run.

When creating your own trading system you must have clear rules for detecting opportunities, setting a profit goal (take profit) and establishing a stop loss. Stay true to your strategy and let the position run. If your system shows you that it is not quite successful you can ask to make some change but if you skip it continuously and do not analyze anything hard you will be able to improve it.

7. Feeling of euphoria after a winning operation

If at the first point we saw the feeling of depression or guilt when facing one or more losing operations, the opposite case can also cause you a very negative result. A series of winning trades can inflate your ego, increase your arrogance and believe you have an invincible trading system. These emotions will make you make impulsive decisions and make you challenge the market that can soon give you a reality check and put you on your site.

To face the most neutral and objective way both winning and losing operations is the key. You will need to have patience and above all help you from the experience that only gives the practice.

No comments:

Post a Comment