As a trader, do you sometimes feel that you can relate to the baseball player who breaks his bat in disgust? The tennis player who mangles their racquet in a fit of rage? Or the footballer who launches the ball into the stands purely out of anger? Can you relate to the concept of self-sabotage?
Trading can actually be a lot like sport in that we often “lose our cool” because we’re mad at ourselves for doing something we knew was wrong all along. We know better than that, and that’s what makes it all the more frustrating!
That’s self-sabotage, and it’s a big problem that traders simply can’t afford. Afterall, considering all the other reasons why any given trade may not go in our favor, we don’t need to be yet another one of those reasons!
So, with that, here are the leading causes of self-sabotage among traders and what can be done to regain the upper hand.
Trading quickly turns into an uphill battle when pre-existing and/or learned biases begin to creep in. There’s really no faster way to cloud objectivity and judgment, or cause hesitation or “unforced errors” than letting biases effect our decision making.
And, along those lines, there are a number of common, costly biases to be mindful of, including:
There are countless other biases that can come into play for traders, some of which we may not even be aware of. That’s why it’s all the more important to carefully and objectively track results inside your trade journal, since that’s where telltale evidence of self-sabotage may surface.
It’s true that there has never been more information available to traders as there is right now. From real-time news and economic data, to all the traditional and new indicators out there, and everything else that can be yours with just a simple point and click, it’s not hard to see why so many self-sabotage by the dreaded “analysis paralysis,” or information overload.
However, think about your trading strategy for a moment and the qualities that constitute a valid trade set-up. There aren’t nearly enough requirements to warrant so much information, are there? Of course not, so why add more information to what you already know?
Remember that trading is all about adhering to a proven strategy, not about being “right.” As a result, you’ll trade your best when you act almost mechanically, executing on valid set-ups only as guided by your trading strategy and never based on emotion or personal feelings.
When you stray from your strategy and go off in search of additional information—perhaps while trying to convince yourself about the validity of a set-up—you can easily run into that endless flow of information, causing blurred signals, hesitation, and information overload.
First and foremost, keep a detailed trade journal and “tell it like it is” immediately following every trade. Don’t just blame the market for going against you whenever you suffer a losing trade. Document what really went wrong, and if it was something you did, own up to it! There’s truly no faster and more effective way to improve your trading than that.
Sure, the discovery of self-sabotage can be a painful revelation, but think of it this way: If you identify and correct the problem before it can wipe out your trading account, this can also be a remarkable turning point in your trading career. Unfortunately for those 90% of traders who ultimately fail, this is a chance they’ll never get.
In addition, a potential “quick fix” is to write out a strategic checklist and post it so you’ll see it while you trade. It’s harder to break your rules when they’re literally staring you in the face, afterall, and that’s what makes this such a simple, yet powerful tool. Doing so can help identify the root causes of self-sabotage and allow you to reverse course before you actually follow through with bad trading behaviors as a result.
Another way to eliminate self-sabotage is simply to know yourself and your tendencies as a trader. If you are prone to certain biases, sometimes get bogged down in information, or allow fear and emotion to cloud your judgment, be honest with yourself and own your tendencies, both good and bad. Inevitably, there will be some character traits you need to suppress in order to trade your best, but knowing who you are will help you harness the power of what you do well, and minimize the impact of what you don’t, therefore heading off the threat of self-sabotage in the process.
In trading and elsewhere, sometimes the key to success is knowing “what not to do,” so if bad habits and unforced errors are costing you money, then like so many traders, you’re dealing with self-sabotage. And, much like a disease, self-sabotage is best uncovered early, so it can be treated and overcome before excessive damage can be done.
A proven trading strategy is truly your best weapon, and once you have one, you have to get out of your own way and let it work. Use your trade journal to check for signs of self-sabotage, and if you see it, objectivity and decisive action are certainly in order.
Remember, just because the market does crazy things that sometimes defy explanation doesn’t mean you have to!