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Acting On Impulse

Why do so many traders abandon their trading plan? Is it their personality, an inherent pitfall of the trading profession, or temporary insanity? A host of factors may contribute to a lack of discipline. Depending on your personality, background, training, and experience with the markets, you may have trouble reigning in your tendency to act on impulse.

For some people, impulsivity is in their nature. They have trouble focusing their attention. They are easily bored. Seeking out quick thrills relieves the tedium of life. For others, impulsivity is related to emotionality. Some people have so much trouble controlling their emotions that they react impulsively out of frustration. Minor setbacks are inevitable in the trading arena. When the extremely emotional trader encounters one of these setbacks, he or she becomes overly agitated, and may close a position early, or in a fit of confusion, make a major trading blunder that can only be remedied by closing the position.

That said, any trader can act impulsively at times. There are many situational factors that contribute to impulsivity. Research has shown, for example, that when people are tired, they have difficulty focusing their attention. As much as part of your conscious mind cares about sticking with your trading plan, your unconscious mind thinks, “Who cares? I want to take a break.” Psychological resources are limited. When you push yourself to the limits, you will have trouble focusing on your ongoing experience, concentrating on your trading plan, and sticking to it. (more…)