Last weekend I had some time to sit down and reflect on my trading over the past five years. I have nothing to show for it but memories of gut-wrenching roller coasters of the account value. The pattern is always the same â periods of euphoria, caused by several good trades, that are quickly followed by periods of depression (caused by several losses in a row or one big loss) that are followed by high-risk-no-stop trade, where I am trying to make up losses with one trade. Then the outcome is binomial â it is either deeper despair, caused by more losses from a high-risk-no-stop trade or new euphoria, if I do make up for losses.
As difficult as it was to admit to myself, I think I have a list of psychological shortcomings that are preventing me from being consistently profitable:
- I have a gambling issue. It took some time for a self-diagnosis, as I have no affinity for casinos, poker, etc., but there is nothing else that can explain my uncontrolled urge to bet a farm once in a while
- I need to work on my willpower and discipline. It happens in trading and in other aspects of my life â when I am under stress from either a string of losing trades, issues at work, issues in the family, etc. the discipline goes out of the window. As a result, I donât follow my own trading rules, I stop working out, I start eating junk, I gain weight, I stay up late mindlessly browsing the internet. Strangely, the same exact thing happens when I am bored.
- Occasionally, I donât take losses. It does not happen on every trade, but after trading reasonably well for some time, something malfunctions in my brain. For some unexplained reason I decide to give some random trade âmore ropeâ or âtime to developâ (quotations are my own thoughts when I try to convince myself not to take a loss), even though price action is screaming otherwise. When loss get unjustifiably big, I make a mental commitment to close a loser on a pullback. When pullback comes, instead of closing a trade, I decide that pullback may be the beginning of the trend that I was expecting to begin with, and I stay with a losing position. In most cases losses get bigger.
- I trade price action or at least I think I do, but I cannot get rid of a âneed to know why price is doing whatâs doingâ addiction especially when the position goes against me. I start reading Wall Street Journal market commentary, start occupying my mind with Fedâs actions, reading other commentaries of market pundits etc. This dive into âfundamentalsâ always leads to great confusion, reduced ability to read price action, and worse trading results.
- I trade against the trend trying to pick tops and bottoms of the intermediate-term moves. Without fail it leads to a big loss and then high-risk-no-stop trade to make up for a loss, basically the downward spiral described above.
The issues described above have been reoccurring for years, it is extremely embarrassing that I am still dealing with them.
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