1. The Madness of Markets

Everyday you’re putting money on the line, in an effort to capitalize on short-term outcomes that are completely out of your control. There is nothing you can do – at least, not legally – to force the market to move in your desired direction. There are no guarantees. You can be upset with Jim Cramer, CNBC, Bloomberg, and the guy on Twitter whose setup you’ve tried to emulate. However, none of them are sharing the burden of your financial outcomes. Once you place a trade, it’s you and the market, and you are helpless.

So, it’s actually understandable to have an emotional reaction to this. The first key, is to be cognizant of this reality. It is quite likely that certain market-related events will cause you to be emotionally triggered. This shouldn’t come as a surprise to you and continue to catch you off guard. Instead of suppressing and ignoring your emotions, constantly bring your awareness to them, identify them, and call them out.

2. Setting The Wrong Goals

So, your goal is to become a rich trader and you want to make millions in the markets. Well, sadly, most traders have a goal of making lots of money in markets, and never actually achieve it. Why? Because the desire to make money is only a very small factor in developing the skills required to achieve it.

This is why you must set Process-Driven Goals. Without a clear and articulable goal around your development and improvement as a trader – your brain will default to measuring progress in profits and losses. Which is going to contribute to the triggers that cause you to over-trade.

3. Unrealistic Expectations

I’ve found this to be a cumbersome hurdle for most new and intermediate level traders. Traders may have unrealistic expectations about their profitability, the length of time it will take them to become successful, and the distribution of wins and losses.

Most traders know that this is a game of probability played out over a large number of samples. However, despite understanding intellectually, those traders will frequently find themselves on tilt after a series of several losses in a row. Instead of chasing losses and attempting to make-them-back – realize that losing sessions, or even losing weeks, are an expected part of the variance in trading.

4. The Pressure of Performance

The desire to end each day in the green can contribute to error-inducing pressure. When a trader is too attached to outcomes, every loss is a prick to the ego, and every missed opportunity is a dent in confidence. In attempting to recover, over-trading becomes the go-to, albeit misguided, solution.

A trader needs to carefully consider how to strike the right balance between demanding excellence, while putting very little pressure on themselves to produce short-term financial results. Being too self-critical, or overly focused on immediate profits, will result in over-trading. Proving yourself as a trader is about having the discipline to follow your trade plan, not about how much money you made today.

5. Lacking Market Context in Your Setups

Traders often find a setup, then start indiscriminately applying it in every market condition. Later, after a series of poor results – the trader then asserts “this setup doesn’t work”. The truth is, breakouts work, but if you start going long every time the market makes a new high, you’ll struggle to be profitable. Pullbacks work, but if you get long at every 50% retracement, you’ll find yourself stopped out quite frequently.

Your setups should have specific contextual factors that you look for, which determine whether this trade is valid or not. If the market is in a clear down-trend in your timeframe – then you may want to elect to skip the long pullback trade that appears to be setting up. Knowing the favorable and unfavorable conditions for your setup will reduce indecision and confusion. Which will help you mitigate the FOMO and analysis paralysis you may be experiencing during your sessions.

The Antidote

Understanding the triggers is half the battle won. The other half is devising a solid trading plan, honing a disciplined process/routine, and keeping our situational awareness high. Over-trading can be catastrophic, and many traders are destroying their edge by committing a barrage of errors week in and week out. If a tire repetitively goes flat, a mechanic will either patch the hole, or replace the tire. It would be silly to focus on the symptom alone, by refilling it with air day after day. By addressing the topics outlined in this article, you will have addressed the roots of your over-trading issues, instead of opting for short-term emotional control, which will not last.

Let’s review what we’ve covered:

• Accept the reality that trading will trigger your emotions, be sure to identify these emotions, not ignore them.
• Set process goals, not financial goals.
• Mitigate unrealistic expectations, and measure progress based on your own personal development.
• Limit the pressure (whether financial or ego-based).
• Refine your trade plan to include the specific market conditions you are looking for in your setups.

– Landau Lang (Content & Community Manager at Convergent Trading)

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