Should we learn to eliminate “bad psychology”? Or should we accept it and find ways to work with the bad habits we have? For example, I sometimes get FOMO (fear of missing out) when watching a big move that I’m sidelined for. The question is: Should I attempt to stop myself from feeling FOMO, or should I accept that I will encounter this often and find ways to stay out of trouble?
I think traders would be best served to initially accept their faults and find ways to stay out of trouble. We have to work with who we are in the first place. We have our own strengths and our own weaknesses. Lean into it.
Traders often attempt to train themselves out of their own psychology, and they often fail. It’s hard to just get rid of an emotion that is part of who you are. Definitely work on changing behaviors, but that is a long term process. What you can do here and now is to develop processes or strategies to protect yourself from… yourself!
Reflect and Identify
The first real step is to identify the habits that you feel are getting in the way of your trading. Think of every thing you do that you wish you could stop yourself from doing. Do you hold on to losers too long? Why? Do you cut your trades too early? Why? Do you jump back into the markets too soon after seeing a big move? Why?
Really consider the “why?” of what you’re doing. We like to analyze the “why” of winners (and then we label that stuff as our strategy funnily enough), but we should also take a good look at what we are doing when we lose.
For me, I have too many bad habits to list here. Just being honest! For now, I am going to focus on FOMO for this post as it is top of mind for me. Besides, I can use the rest of my bad habits in the future since I need more blog post topics!
Work with Who You Are First
When I miss a big move, I have a bad habit of calculating the monetary value of it. I would look at where my entry “should have been” and calculate the dollars I missed for 100% of the move. I stare at it and say “Wow, I missed out on $_____”, and I start to have the urge to trade. I want to earn what I missed. The market owes me. Sound familiar at all? Maybe you’re lucky and you never do this. For me, this is how I feel FOMO and this is how it messes me up.
For the longest time, I tried my best to fight the urge. I wanted to not feel FOMO at all. I would do well for a few days, but then I would miss a big move and would fall back into my habits. I still do this time to time if I’m being honest. One change I made in the past few months is just accepting that this is just who I am. Instead of trying to change who I am, I started to think about what I can protect my own trading from who I am.
Now when I feel FOMO the best thing I can do recognize the feeling and then turn off the market and walk away from my trading desk. It is a simple solution. If I sense that I’m feeling FOMO then I should take away trading. I try my best to do this every trading session until it becomes a habit for me. It wasn’t easy in the beginning to just walk away, but over time I noticed that my profits were better this way. I try to prevent myself getting into bad positions after feeling the market “owes me”. I stop myself trying to earn back what I missed. This is how I work with who I am. I know I’ll get FOMO, and this is how I react to it.
So brainstorm what you can do about your own bad habits. You can’t stop yourself from being yourself, at least not immediately. Think of things you can do to to protect your profits from yourself. Some easy examples:
- Walk away from charts as needed
- Set a daily loss limit
- Set a profit target
- Set a trade counter limit
- Do some jumping jacks between trades
- Take a short walk when you’re feeling angry
- Lock out sessions you want to avoid
Make Small Adjustments To Change Habits
If I could choose, I would be impervious to FOMO. I would be able to witness a big move while thinking “wow, I missed a nice move, but I know there will be others”. Unfortunately, I can’t just get rid of FOMO. At least not immediately. Instead I can try to make changes to that feeling over long periods of time.
- I constantly remind myself that there will be more moves. I tell my trading buddies the same, and they tell me the same. I know I don’t have to catch every move.
- I let myself watch the market some after I’m done trading. I practice the habit of recognizing when I feel FOMO. Then I walk way.
- I also let myself see that my day is neither better or worse from missing the move. I was flat and missed a move, and that’s okay. It didn’t change my day.
- In a sense, I’m trying to desensitize myself to missing big moves. I let myself see it happen, feel it, and then also let myself realize that it was okay to miss out.
Maybe I won’t ever get rid of FOMO, but I can tell you that after doing the above enough times that I don’t feel it as often and that it doesn’t impact me the way it used to. I let my steady days just stay a steady day. I’m learning to accept missing moves.
“I’d Be Great If It Weren’t For Bad Trading Psychology”
I already know what I’m about to say will strike a nerve with some traders. But I think it needs to be said! It has become one of my pet peeves when a trader blames trading psychology for losing days, and just leaves it at that. Some treat it as if an outside force that caused a losing day. Why do some traders push a loss on to “Trading Psychology” but then the trader takes credit for profits. That is the opposite of accountability.
Let me be clear: I believe trading psychology is 100% real, just as I believe psychology in general is real. Humans have different personalities, different risk tolerances, different ways of reacting to losses. That’s just how we are. However, when some traders blame “Trading Psychology” they need to realize another piece of that statement. That “Trading Psychology” is just the person we see when we look in the mirror. When you want to blame trading psychology, stop and think “but that is me. I’m my own problem”.
Take action and make changes! Think of ways to protect yourself from bad habits (I turn off the markets now when I start to feel FOMO) and also train your mind to deal with them (I still watch the market even when I’m done trading, but recognize that missing a move didn’t impact me). It might not happen right away, but over time traders can learn to protect their profits, from themselves.
