Repeating the Same Mistakes in Trading?

By | May 16, 2020 10:54 am

Came across a great article here by Brett Steenbarger titled ‘A Self-Help Crash Course for Traders’. The article applies a discipline called ‘brief therapy’ to address the issue of why traders can’t seem to control themselves and make the same mistakes over and over again.

It has quite a number of good points. Here’s a quick summary

  1. Regaining control
    • Such traders feel that they have lost their self-control. This is compounded by the fact that it is control over an important aspect of their lives. That leads to anxiety, doubt, distress, and even depression.
    • The first step is to regain a measure of control, by defining smaller, achievable goals rather than judging yourself with grand goals.
    • Do a thorough review of the year’s trading results.
      • Find out the common denominator behind where you lost money. E.g. the time of day, day type, type of market, emotional state (e.g. angry, revenge trading), physical state.
      • What is the common denominator for your winning days? What was your state of mind, what was your approach?
    • Many times, what seemed to be a large number of problems is actually a single problem pattern that started the downward spiral. You need to figure out the pattern and focus on changing it.
  2. Finding the theme behind the patterns
    • Draw a set of sine waves with peaks and valleys. Write down on the peaks all the best experiences of your life when you were happiest and most fulfilled. Write down on the valleys the worst experiences when you were the most miserable. Include at least 7 peaks and 7 valleys.
    • Look across the peaks, find a theme or common ingredient. Also look across the valleys to find a common theme. Look for a common emotional state and how you have typically handled that emotion.
    • Most of the themes are old coping mechanisms (e.g. rebellion against rules, perfectionist to meet expectations, inferiority complex by judging oneself by others’ achievements, guilt from self judgment, etc).
  3. Disrupting those patterns
    • Target one specific pattern (e.g. reduce anxiety, change negative thoughts) to change at one time.
    • Use imagery to rehearse situations where the problem pattern occurs, and imagine yourself standing up to and challenging the problem pattern, and replacing it with positive actions.
    • Progress step by step to create a sense of mastery so that you can feel in control and gain confidence. First practice the situations in imagery successfully before applying it to real life.
    • Repeat this process day after day of interrupting negative thoughts and challenging them, until they are internalized.
    • Another method is to identify the common theme in your ‘peaks’ and re-create those thought patterns when the problem patterns appear.

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