Wednesday, 14 May 2014

Perfectionism and Performance

A common trait among newer traders, or among traders that are not profitable is a need for perfection. With so much noise in the media, blogs, and forums about calling tops and bottoms, one would think it’s a trader’s job to predict such things. Expecting to nail the top or bottom is a recipe for frustration and inconsistent performance.

For the discretionary trader, perfectionism is the enemy of the good. Trading is about making money while simultaneously controlling risk, it has nothing to do with perfectionism. All traders have some degree of perfectionism, but some have more than others. The variation in perfectionism is due to personality differences, and the different career backgrounds that some people bring to trading.

Traders with strong perfectionist tendencies often equate taking a loss with failure. For these traders, a losing trade often marks the beginning of a new cycle of negative internal dialogue that often leads to trades based on frustration instead of what the market is doing. A trader who is less focused on perfectionism and has more flexible expectations realizes the inherent uncertainty underlying any market is the reason why losses are part of the business. This realization helps one to develop the ability to tolerate emotions that are associated with pre-defined losses.

Another common problem associated with perfectionism is that it often leads to rigidity and a very mechanistic view of the market. The market is akin to a living breathing dynamic entity. The market’s moves, especially in the short-term, are not determined by precision and logic, but by perception and emotion. Letting go of the need to be right will free you up to focus on doing the right thing.

A Day In The Life of a Day Trader

A Day In The Life of a Day Trader infographic


Quote for the day

“That is the nature of pattern recognition, asking 'What can I infer about this situation based on similarities to what I already know and trust that I understand?' There is less emphasis on trying to reason out things on the basis that they are special because they are unique, which in a financial context is perhaps the definition of a speculation... It creates an impulse always to connect new knowledge to old and to primarily be interested in new knowledge that genuinely builds on the old.” - Alice Schroeder