Repeating Bad Trading Habits

[TheNegotiator 13]

I read Db's The Trading Journal/The Trading Log thread and thought about how useful it is for a trader to plan and journal as outlined. I'm actually unsurprised but frustrated at how little attention the thread has got so far(perhaps though, it’s not in the ideal forum location ). People are always far more interested in trade system x and make y dollars. Well you do have to find a method you're comfortable with as a starting point I guess, but that's where the usefulness of pursuing this type of post ends.

 

Anyway, I thought about how the importance of journalling in particular is often stressed (and often falls on deaf ears) but how infrequently I see people talking about what they do with the journal material. More specifically, when they spot negative behavioural patterns, what they do to make changes on a permanent basis and avoid relapses.

 

Do you know that you're doing something wrong and yet you find yourself in the same dumb position time and time again? Well, it's not an especially unusual situation. Trading requires changing natural behaviours and so well-formed predispositions to certain events can have a negative influence on trading.

 

This is at its core about how habits and responses are formed by the action of repetition over time. It doesn't matter whether these things are particularly useful or not. In fact, there is a case to argue that in certain situations actually negative behaviour is 'easier' to turn into an automatic response. So the ability to identify and change behaviour over time is not only important, but critical for a trader to survive and flourish in what's a dog-eat-dog trading world.

 

First of all I like others, would point out that although having relapses is a potentially costly experience, it means that you’re probably on the right track towards making the change you’ve identified. The very fact that you’ve identified the problem, resolved to do something positive instead and created a plan to deal with it, means you are a step ahead. The first thing is of course to see that some behavioural pattern is indeed an issue. Journalling and review done correctly should really help you do this over time.

 

Once you have identified the perceived problem you must study it. Study when it happens. Is it to do with market conditions or your own condition? How does it specifically affect your account? How frequently does it occur? If it’s specifically related to trading action, what would your account realistically look like if you removed the affected trades? By doing this you not only work out whether the issue is a big problem, but you also take responsibility for it. Memory on the other hand can be quite biased or at least conflicting. For example, you’ll not only remember that the issue lost money at a certain time, but that you clung on and didn’t lose money another time. The hope caused by that can be dangerous. If you see the actual consequences, you are much more likely to feel the problem and stick to measures designed to eliminate it.

 

When you are ready to start the change, the key is to make it a conscious part of your routine. Adapt your journal and review process to include very specific information on the problem/change. Like with any new task and especially one where you are attempting to break an engrained habit, conscious effort is required to give yourself the best possible chance of practicing the change and therefore ultimately making it habit. There’s this push-pull between the unconscious automatic responses and carefully considered conscious responses before the two become aligned. Often when the market does something different to what you expect of it, the automatic can take over if you’re not constantly aware of the potential for that to happen. To compound this, it’s frequently behaviours which are infrequent in their occurrence and so easily slip the mind. Although studying relapses is painful, it’s also important. Once you’ve started practicing the change, relapses are often only in extreme cases and therefore provide a special insight into circumstances leading to their occurrence.

 

When you see improvement, don’t stop. Focus your efforts on what you did to make the change and sustaining those actions. The key to successfully changing old and negative habits is practice. So be honest with yourself so that the practice you are doing is the right practice. Judge your actions properly and don’t give excuses about why you did this or didn’t do that. It’s much easier to lie to yourself than someone else and so accountability is also crucial to success.

Edited August 1, 2012 by TheNegotiator