15 DESTRUCTIVE PSYCHOLOGICAL TRADING ISSUES AND THEIR CAUSES
This list of 15 obstacles to attaining The Trader’s Mindset is useful as a reference in troubleshooting. Review this list when you are experiencing draw down to see if any old bad habits have reappeared or maybe a new obstacle has developed that you have never experienced before. Then see “if the shoe fits” and use the list to determine what approaches you might be able to take to pull yourself out of a performance slump.
This list is not all inclusive; you may experience combinations of the following issues or may have obstacles that are not even on the list. If that is the case, jot down your notes in the “Personal Obstacles” section so that you can create your own diagnosis and solution.
Fear of being stopped out or fear of taking a loss. The usual reason for this is that the trader fears failure and feels like he or she cannot take another loss. The trader’s ego is at stake.
Getting out of trades too early. Anxiety is relieved by closing a position. This is caused by a fear of position reversing and then feeling let down. The trader has a need for instant gratification.
Wishing and hoping. The trader does not want to take control or take responsibility for the trade. The trader has an inability to accept the present reality of the marketplace.
Anger after a losing trade. There is a feeling of being a victim of the markets. Unrealistic expectations lead to caring too much about a specific trade. Tying your self-worth to your success in the markets, or needing approval from the markets, will lead to losses.
Trading with money you cannot afford to lose or trading with borrowed money. It is desperation to view a trade as the last hope at success. Traders fall into this trap when they are trying to be successful at something or fear losing the chance at opportunity. Other causes are lack of discipline and greed.
Adding on to a losing position (doubling down). The trader does not want to admit the trade is wrong and hopes it will come back. The trader’s ego is at stake.
Compulsive trading. A trader can be drawn to the excitement of the markets. Addiction and gambling issues are present. Such traders need to feel in the game. They have difficulty when not trading, such as on weekends—they are obsessed with trading.
Excessive joy after a winning trade. Tying your self-worth to the markets. The trader feels unrealistically “in control” of the markets.
Stagnant or poor trading account profits—limiting profits. In this situation, a trader might feel undeserving of being successful—of making money or profits. Usually, this involves psychological issues such as poor self-esteem.
Not following your trading system. The trader doesn’t believe it really works, or did not test it well. Maybe it does not match your personality. Maybe you want more excitement in your trading. Or maybe you don’t trust your own ability to choose a successful system.
Over thinking the trade—second guessing the trading. Fear of loss or being wrong can paralyze a trader. A perfectionist personality can create this problem. Causes include wanting a sure thing where sure things don’t exist; not understanding that loss is a part of trading and the outcome of each trade is unknown; not accepting there is risk in trading; and not accepting the unknown.
Not trading the correct trade size. Dreaming the trade will be only profitable. The trader might not fully recognize the risk and not understand the importance of money management. The trader might be refusing to take responsibility for managing the risk, or be too lazy to calculate proper trade size.
Trading too much. The trader feels a need to conquer the market. Causes include greed and trying to get even with the market for a previous loss. The excitement of trading is similar to compulsive trading.
Afraid to trade. No trading system in place. The trader is not comfortable with risk and the unknown. The trader might fear total loss or ridicule. The trader might have a need for control. There is no confidence in your trading system or in yourself.
Irritable after the trading day. The trader is on an emotional roller coaster due to anger, fear, or greed. There is too much attention on trading results and not enough on the process and learning the skill of trading. The trader focuses on the money too much. There are unrealistic trading expectations.
Source: A Trader's money Management System by Mcdowell
