How to Overcome the 3 Most Common Trading Vices

Today we are privileged to be joined by one of the world’s leading authorities on trading psychology, Dr. Brett Steenbarger. Dr. Steenbarger is the author of the popular trading book, The Psychology of Trading. He is Director of Trader Development for Kingstree Trading in Chicago and is Clinical Associate Professor of Psychiatry and Behavioral Science at SUNY Upstate Medical University in Syracuse, NY. Dr. Steenbarger not only has academic credentials–he has actively traded over the last 20 years–he truly provides a fresh voice in the often-stale subject of the mental game of trading. Let’s get started…

Dave: Welcome to Real World Trading, Dr. Brett.

Dr. Brett: Thank you, Dave. It’s a real pleasure to be part of One of the joys of my work is the opportunity to be a part of people’s personal and professional success. I’m looking forward to contributing to the success of your subscribers.

Dave: I find your work fascinating, particularly your ability to break complex theories into easily understandable and instantly applicable rules. One of my favorites is your three vices of trading. Please tell us each vice.

Dr. Brett: I first wrote about the three vices in an article on my website, as part of a seminar I offered Woodie’s CCI Club, a large group of traders who educate each other about pattern-based technical trading. The response to the article was favorable because the vices seem to capture many of the mistakes we’ve all made as traders.

The first vice is perfectionism, the tendency to set unreasonable goals and standards for oneself. I can’t tell you how often I’ve heard a trader express frustration with a winning trade because “I should have taken more out of the move. What the trader is really saying is, “I should have been able to catch the absolute highs and lows.” Because their standard is unrealistic, it sets them up for frustration, turning winning trades into psychological failures. If traders find themselves using the term “should” frequently when talking about their trading, there’s a good chance that perfectionism is lurking in the background. Perfectionism is not about being achievement oriented or competitive; perfectionism is a repetitive emotional pattern of self-talk that says, “What you’ve done isn’t good enough.”

The second vice is ego. Ego enters into our trading when we write a blank check for our self-esteem, allowing our feelings about ourselves to ride the ups and downs of our P/L statements. Hanging onto losing trades to avoid feeling like a loser: that’s one manifestation of ego. Impulsively putting on a trade after a losing trade to make back your money.