Why Trading Literally Messes With Your Mind

Humans like security. Simple. We love (and need) to know where our next meal’s coming from, that we have a safe roof over our head, and that we have loved ones to help if we get sick and that medication is available to perk us up again. We’ve evolved to enjoy that warm fuzzy feeling called ‘Peace of Mind’.

There are, however areas in our lives where we choose to take risks. For some, it’s thrashing a hot-rod around a racetrack at 100mph. For others it’s that giddy-making bungee jump. For us it’s placing that trade. Let’s face it, we love it. We thrive on it, and when it goes well and the money rolls in, it’s one of the best feelings on earth.

The dark side: But… we’ve all been to the dark side, too. We went with our gut. Our expertise, stuck to the plan, the rules and it still went wrong. Plummeting down, way past your stop-loss parameters and you find yourself in the doldrums of a sickening 7% cost to your trading account. “Why!” you cry, head in hands. That feeling in the pit of your stomach, the raised pulse and you’re kicking yourself for not stopping sooner. But then you think: “My trading software isn’t performing”, or: “Why didn’t someone advise me to stop sooner!”, etc. Sound like you? Well, you could be experiencing an actual psychological state known as ‘Cognitive Dissonance’.

Mind matters: Cognitive Dissonance is that gnarly feeling you get when you do something that goes against what you believe to be right. You place a risky trade that goes bad, you lose money and those guilty/gnarly feelings creep in, making you feel like a lowly worm. But then you justify to yourself as to why you took that risk, to make those feelings of loss go away. You’re basically lying to yourself and blaming anyone but you!

The only way is up! Now we don’t want to make you feel bad, but this type of thinking is truly going to destroy your trading account if it goes on. So stop lying to yourself and justifying those bad decisions! We’ve got a few little pointers to get you going in the right direction:

• Set up a good, solid trading plan that works with both sides of the market – and stick to it. Remember you cannot win them all, so be realistic with your expectations. • Once you’re set up, start logging all your trades; the good the bad and the ugly. Note your thoughts for each, so you can start to pin-point where that Cognitive Dissonance creeps in. • Don’t start justifying your bad trades – to yourself or anyone! If it goes wrong, accept it and move on. • Have faith! Be confident in what you know, in your system and stick to your risk management strategy.