About 43% of what people do on a daily basis is repeated while they are thinking about something else. In other words, half the time, people automatically respond without making decisions.
Perhaps you, too, have automatic responses when you trade. But before you think of breaking your bad trading habits, you should know which ones you’re guilty of. So, this article will start from there — here are 5 things that will make you a sore losing trader.
1. Crowd trading
Humans’ natural desire to follow the crowd often gets in the way of successful trading. Even if you think of yourself as making independent and objective decisions, there might still be a small part of you that participates in herd behavior. This is because, on a fundamental level, every person follows the lead of their friends, relatives, and neighbors to some degree, feeding the power of the crowd.
You should realize the trading crowd is comprised of individuals with competing and conflicting emotions. They can spark massive market rallies and sell-offs even when there is little support to justify the price action.
The ideal situation is when your personal decisions align with the market crowd. But if it doesn’t, keep in mind that the crowd doesn’t necessarily know better.
2. Revenge trading
When a trader suffers a significant loss, it’s easy to fall into an emotional trap of trying to recoup losses from a previous trade. But new trades often become bigger and riskier, which can potentially dig an even bigger hole. Instead of looking to their strategy and learning from the incident, they make irrational decisions and jump straight back in.
Remember that it’s impossible to force success. This is why there is no trading system that incorporates loss-chasing or quick fixes. If you feel that you’re moving into an anti-productive, anti-strategic, luck-seeking mindset, take a step back. Consider switching to a longer trading timeframe so you can cool down.
3. Feeling bad about losses
After a losing trade, you may feel a mix of embarrassment, anxiety, anger, sadness, and shame. This is a natural reaction. But if you look deeper into it, why would you feel bad about something that allows you to mature?
You may have developed irrational beliefs about failure. Perhaps you think if you have a losing trade, you’ll never succeed. Try to identify these inaccurate beliefs and rewire your reactions to failure. For instance, it’s better to view trading mistakes as something specific and external rather than something internal. This way, you’ll skip the soul-searching part and treat losses as something you can handle and learn from your failures.
Neuroscience studies tell us that fear of taking action is simply your brain doing its job. A healthy dose of hesitation can keep you well and safe. For instance, if you venture into unknown territories, feeling hesitant will help you avoid a rash decision.
But what if the asset breaks out of your key zone, and, instead of following your plan, you freeze and miss the opportunity? As you can guess, this doesn’t describe the behavior of a successful trader.
It’s hard to throw away all your doubts in an instant. In the early stages, consider reducing your positions at least by half, perhaps, more. This way, you’ll test the waters with smaller risks and build confidence.
5. Depending on external sources
It can be helpful to study experts or others who have accomplished similar trading goals. But there is a difference between gaining the insight and knowledge you need and relying on them to make the right choice.
Think about it: there are so many resources offering trading advice and allegedly effective strategies. And some “experts” even claim to have found the magic formula for success. They’re trying to capitalize on your fear of making independent decisions.
Here are a few little tips to become more comfortable with making your own choices:
- Identify the risks you take
- Don’t fear the consequences
- Keep your eye on the ball
- Limit your options
- Give yourself some time
- Keep a trading journal and analyze data
Once you are aware of these trading habits, you’re one step closer to breaking them. It’ll be easier to notice patterns and strategically break out of them. But in all honesty, adopting the right trading habits is one of the most challenging parts of the journey to disciplined trading. So, be patient with yourself!