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agvamihuuzo
08-19-2015,
The Three Vices of Trading
By Brett N. Steenbarger, Ph.D.*
Posted: January 26, 2007


This short article summarizes several of the psychological pitfalls that interfere with accurate pattern recognition. My hope is that traders can focus on these three "vices" as mental preparation for entering the markets. One of the best ways of becoming an observer of your negative behavioral patterns -- rather than a trader lost in those patterns -- is to periodically take your emotional temperature. That means standing back and asking yourself: Am I falling prey to one of the vices below?

Remember: Observing and interrupting your patterns are the first steps in altering them! Your patterns lose control over you as you become better at not identifying with them. When you become an observer of your patterns, you are separating yourself from them. What great progress that is!

Vice Number 1: Perfectionism

Perfectionism is often the chief culprit when the pain of losing exceeds the pleasure of winning. Desperately trying to feel good about themselves, perfectionists set unrealistically high ideals. They think they will finally be okay if they just accomplish X. (For X, you could substitute many things, including looks, wealth, popularity or achievement.)

Ironically, because X is an unattainable goal, perfectionists use their ideals as a basis for self-criticism when their performance doesn't match up. After all, if achieving X will make me okay, I must not be okay if I fail to achieve X.

The emotional theme of the perfectionist is "not good enough". Perfectionists are driven to do more and more because they never feel competent, worthy and loved as they are. Thus, even when there's a profit on a trade, perfectionists will look for the portion of the move that they did not participate in. If they caught most of the move, they will reprove themselves for not trading a larger position. And, when trades don't go well, perfectionists review all the reasons that they shouldn't have made the trade, should have known better, and so forth.

By focusing on the portion of their performance that doesn't match their ideals, perfectionists transform successes into defeats, losses into failures. They rationalize their perfectionism as a drive for achievement, but all they are accomplishing is an undercutting of their confidence.

Perfectionism shows up as negative self-talk and self-blaming. Emotionally, we recognize perfectionism from frustrated, angry feelings when trades don't work out as planned. "Beating myself up" is how many perfectionists describe their self-talk.

The way to beat perfectionism is to make a concerted effort to talk to yourself the way you would talk to a good friend in a situation in which things went wrong. Most people know how to treat others with respect, love and dignity. They just haven't learned to do the same for themselves.

If you would be more nurturing, understanding and supportive of a friend than you are of yourself in the identical situation, you know that you're not being your own best friend.

If a trade doesn't work out, the constructive trader thinks, "What can I learn from this?"-- not "What's wrong with me?". The best antidote to perfectionism is the ability to reassure yourself with thoughts such as, "There will be better trades down the road." The key is not to miss those better trades while you're beating yourself up!