Dear Bella,
I have been a fan of the work you all do here on the SMB Blog, bringing interesting and informative trading thoughts and ideas to us. You occasionally provide responses to readers’ questions so perhaps you’ll do the same for me.
After a few years of part-time study and now seven months of full-time attention, I have reached a point where my technical and chart reading skills are suitable for me to be a profitable trader. The problem is, I cannot bring myself mentally to stop put a losing trade. Even worse, I am predisposed to averaging a better price by adding to the loser trade. It’s important to note that I recognize this as a problem and am trading on a simulator until I can master it; been on the simulator for two and a half years, in fact, with real money at risk only twice in the last two years. I have read Dr Steenbarger and read Mark Douglas until my eyes cross. I’ve focused my attentions, I‘ve done visualization exercises (which I had success with in high school sports years ago), to no avail. Interestingly, I have thought about it enough to realize that this is merely a symptom of some other, deeper wall I can’t cross, because there are other times and instances throughout my life where not being able to admit to being wrong, akin to stopping a losing trade, has damaged me personally.
I sold my business of 21 years at the beginning of 2011 to devote myself to trading as a career, and I am not willing to quit. Trading is my future, but that future is on hold until I can beat this. I have even toyed with the idea of seeing a behavioral therapist; a psychologist of some sort. I really am at my wits end, and I’m tired and bored of trading on the simulator, given that my chart and technical skills are reasonably good. I am not able to advance beyond this point without a notable change in approach.
With all your experience dealing with new traders, do you have any thoughts or ideas that could help me and no doubt, help many other readers?
Dr. Andrew Menaker
One of the most important things a trader must learn is how to lose well. Three things stand out for me regarding this
trader, helping to shape my response.
One, this person has successfully used visualization in the past around athletic performance but they’re not getting the same results with trading. Two, they’ve read excellent trading psychology books but have not been able to change their behavior. Three, they’ve realized their difficulty with being wrong goes beyond trading and is
present in other areas of their life.
Adding those up, and combining them with the fact that this problem of dealing with losers is present with sim trading, suggests to me that this trader needs something more than a cognitive-behavioral approach. When someone identifies the same recurring pattern of behavior in their trading and in other areas of their life, and common techniques like visualization are not helping, it suggests that the problem behavior is a symptom of something deeper.
When someone has a recurring problem behavior that is resistant to change, the most effective approach is to go after the root of the problem. This trader needs to understand what losing represents to them on a deeper emotional level. It seems for them that dealing with loss and/or being wrong may have deeper roots, and the way to address that is with deeper work, beyond visualization and the usual cognitive-behavioral approach. My sense is that this trader could benefit from using a psychodynamic approach, where the emotional context around losing and being wrong is understood. When this trader has a deeper understanding of what losing or being wrong means to them, they will be in a better position to control their actions.