It’s well-known that venturing into financial trading is fraught with risks, especially the potential to lose your hard-earned cash. However, Brett Steenbarger, a respected trading psychologist, highlights additional perils that often fly under the radar for many traders.
Do you catch yourself making these missteps too?
### 1. The Peril of Monotony
Many individuals are attracted to trading with dreams of quick financial gains. Yet there are times when the market is stagnant, or perhaps your trading strategies aren’t aligning with market movements. In these scenarios, an impatient trader might feel tempted to stray from their strategy or force trades unnecessarily. If you’re feeling restless and eager to dive into the market, it might be wise to take a breather from your trading screens.
### 2. The Hazard of “Drawups”
While most traders are familiar with the stress of drawdowns, it’s crucial to recognize that increasing account values, or “drawups,” present their own set of challenges. After a streak of wins, a trader might fall into the trap of overconfidence. This can lead to poor decisions such as swelling their position sizes beyond control, entering too many trades, or abandoning their trading plan altogether. It’s crucial to remain grounded, keeping emotions and ego in check by strictly adhering to your trading plan.
### 3. The Sequencing Threat
Even with immaculate trade management and a solid trading system, no one can predict the sequence of winning and losing trades beforehand. Traders face sequencing risk when they misconstrue the order of their trade outcomes and ignore the statistical context. For instance, a series of wins might falsely boost confidence, making one believe they’ve mastered the market. Conversely, a string of losses could sow doubt, prompting deviations from the trading plan.
Even fluctuating between wins and losses without evident progress might demotivate you, leading to a sense of stagnation or even causing you to abandon trading entirely. Thankfully, you can steer clear of such destructive mindsets. Maintaining a trading journal offers a vital perspective, allowing you to focus on the broader picture and keep things in perspective.
