Tuesday, April 22, 2014

Breaking Bad Trading Habits Through Self-Coaching

A reader asks the question of how to break bad habits in trading.  His example was failing to endure the pain of gain:  taking trades off before they have reached their intended targets.

This post will provide some perspective on the problem.  The key idea is that problem patterns often represent ways of meeting needs that unfortunately bring their own consequences.  If you can identify the need that lies underneath the problem and find a better way to meet that need, the problem suddenly yields way to a solution.

In the case of taking profits prematurely, that need might be a need for psychological victory and a fear that such victory will be lost should the market reverse.  This often occurs when traders measure their progress and success solely in outcome terms (by their P/L), rather than in process terms (by how well they engage in the right trading behaviors).  One of the advantages I've observed by having traders keep best-practice checklists is that those become a kind of report card, enabling the traders to identify their good trading.  When success is experienced in process terms, the insecurity that leads to premature profit grabbing no longer drives behavior.

Once you accept that problems shouldn't be eradicated--that every problem represents a suboptimal strategy for meeting a legitimate need--fresh paths to solution appear.  

When I wrote The Daily Trading Coach, I intended it as a resource to help traders coach themselves.  Below are a couple of posts to get interested readers started.  Many of the research-validated techniques of brief therapy are not difficult to pick up and apply--and once you have those skills, you have them for a lifetime.  

Further Reading:

Therapy for the Mentally Well

Becoming Your Own Brief Therapy Coach

Self-Coaching Ideas for Traders