1) Do the problems that affect your trading also impact other areas of your life? – Let’s say that you find yourself overtrading and taking too much risk relative to your planned exposure. You realize that these lapses of discipline are costing you money and creating significant frustration. The key question to ask is whether these lapses also occur in other spheres of life: in managing personal finances, in failing to follow through on personal responsibilities, or in impulsive decision-making regarding career, relationships, and the future. If so, then you know that this is a general problem that is spilling over into trading. Working with a psychologist or other licensed therapist or counselor could be the best way to go, as this is not uniquely a trading problem. Alternatively, if the problem truly is unique to trading, then it is probably triggered by situational factors related to how you are trading. Relying on a trading coach to review your trading practices and address these factors can be promising.
2) Do the problems primarily result from poor trading, or are the problems a primary cause of poor trading? – This can be tricky to sort out, because the direction of causality often goes both ways. Many times, poor trading practices–such as trading excessive risk–lead to emotional fallout, such as frustration, anxiety, or even depression. Working on changing emotions might be helpful, but the root cause–the faulty money management–needs to be addressed. Conversely, there are times when emotional problems, such as performance anxiety, get in the way of trading plans and trading results. It is very helpful to examine trading problems in a step-by-step fashion, to see where emotions are affecting trading and to see where trading is creating emotional pressures. (more…)
Archives of “lapses” tag
rssMarket Volatility
Many, many times traders are quite conscientious and self-controlled in most areas of their lives, but experience lapses of discipline specific to trading. When this happens, it’s often the case that the trading itself–*how* they’re trading–is artificially creating the failure to follow trading rules. A key culprit in all this is market volatility. Volatility changes from day to day and week to week. It also varies as a function of time of day. Frequently, traders trade a fixed size and set fixed targets and stops, heedless of the underlying market volatility. In a low volatility environment, they fail to hit their targets and get stopped out, criticizing themselves for leaving money on the table. In an environment of enhanced volatility, the market will blow through their stops or exceed their targets, leaving them feeling that they did not trade well. This is especially true when traders find themselves unable to take what is normal heat in an environment of raised volatility. In such cases, it really isn’t a lapse of discipline causing the problem. Rather, the trader is not adapting to market conditions. Adhering to fixed rules in a variable environment is not necessarily a virtue. Changing markets can prevent us from enacting those fixed rules.