How to avoid the “Perfectionist” trap

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Know this: the quest for perfection is a mental trap. It is time for a reality-check. If you recognize yourself in any of the following symptoms, then read on: your mindset might be blocking you from making headway in the markets…

  • Trying to obtain the perfect entry level
  • Trying to design the perfect strategy/approach
  • Trying to pick the perfect trade
  • Unsatisfied by an imperfect house
  • Unsatisfied by an imperfect meal
  • etc…

Perfection is a mental trap

For a moment, visualize the following situation: you are perfecting your trading method, doing what seems logical – the trading game is highly competitive so you spend all your free time working on this perfect system that has an 85% win rate and small losses.  You study, study, study, and study again. And at a certain point…you take it live. After 3 winning trades, you get stopped out. In an attempt to “weed out” the imprecision that caused this loss, you stop trading, go back to the drawing board and tweak the method.

In the meantime what happened to your day job? If trading is your main focus, your day job will most likely suffer. And what about your health? Are you in the “perfect” physical shape to perform best? Probably not because you’ll still be designing the “perfect workout” or looking to be “in the zone” at all times. Consequently, your consistent focus on perfection will harm you when you’re not feeling like you could “spit fire”.

What is my point? Perfection is yet another Chimaera (much like the Holy Grail trading system)  which will push your happiness into the future. You life is consistently on hold while you search & tweak every possible aspect of it, in search of perfection. If you cannot deal with “trade-offs”, you might want to read on.

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Trading is a job full of compromises. There’s no perfection to be had. There is no perfect system. There are no perfect trades. There is no perfect trader. Here’s an example:

1

Source: TradingView.com

The Euro is breaking down with momentum. You place your “perfect entry” on the breakout level 1.1365 because “it’s the origin of the move”.

2

Source: Tradingview.com

Your first entry was never triggered, and price is 100 pips lower already. You obtain a second momentum breakout at 1.1259 and use the same strategy: sell limit at 1.1259.

3

Source: Tradingview.com

Your second entry was missed as well, and price continued in your expected direction another 200 pips. In total, your search for the perfect entry has cost you 300 pips of missed profits. Your strategy was correct – you correctly anticipated future market movement – but your execution was poor and cost you.

 

What lies behind perfectionism

Trading is full of compromise and is definitely the wrong job to pursue if you’re fully convinced of your perfectionist tendencies. However, if you are typically NOT a perfectionist, yet you become one when you trade, then maybe it’s time to face this inner demon and find out exactly what, in your psyche, is holding you back.

“But…I’m only attempting to do a good job”

“I’m putting in the hours”

“I’m an overachiever”

“I’m a disciplined, hard working individual”.

Is your inner-voice justifying your perfectionist tendencies with these or similar beliefs?

How many times has a boss or colleague asked you to “put in the extra time to make sure you do things right”? Society, unfortunately, does not guide us towards peace of mind. Society drives us insane. So while so many people try to do things perfectly, try to look perfect, try to act perfectly…psychologists and psychotherapists are receiving ever higher paychecks. Why? Because the same people that on the outside look sturdy and perfect, are actually full of doubts, searching to control their own lives, and overly anxious about everything they do.

Think of one situation most of us can probably relate to: when we were growing up, our parents were demanding of us:

  • it was NOT ok to get average grades in school;
  • it was NOT ok to play with kids that diddn’t have good grades;
  • it was NOT ok to play an instrument just to have fun: you had to play it well or in a professional manner;
  • it was NOT ok to sleep in on the weekends: you’re not using your time wisely

So going through these experiences you learn that the “right way” to do things is always seek to be the best and nothing less. You would bring back an A- on a test and your parents would say “that’s good, but why diddn’t you get an A or an A+?”

So you learn very early on that the world is a demanding place (a reflection of your highly critical parents) and that you need to be better than the others in order to be respected (a reflection of the fact that you need to get A+ and A- is not good enough). You also learn that “practice makes perfect” and the times where you get some approval is when you bring home the highest mark in the class, or you are the best chess player in the team, or you got a job at the best shop in town.

While we can probably all relate somewhat to that situation, there are other traps to be aware of, that can lure into the perfection-seeking (and ultimately paralyzing) mindset:

– fear of failure: this is an extension of the “highly critical parents situation”. You learn that to be successful you need to be the best and failure is not allowed. If that’s the way you have been going through life, be prepared for physical torture: the amount of pain you will experience, due to losses in the markets, will be unbearable. The correct approach, however, is to work through the pain, understand that it’s the mindset that’s wrong and not the losses, and cut the losses as soon as logically possible.

– cultural pressure: everywhere you look (on TV, in magazines, on bill-boards, etc.) perfection is there, as an ikon of what you should be striving for. There is no escaping this, because we are bombarded with publicity 24/7 whether we like it or not. The only solution is to learn that comparing ourselves with others leads only to jealosy and negative thoughts. The only good challenge is with ourselves.

– uncertainty and loss of self esteem: visualize this. You leave a job you did not like – that was not allowing you to thrive but it was allowing you to survive – and before looking for another job you decide to trade for a living. You have studied and watched the markets for a few years and feel confident that you can understand them. So you start to trade and you find yourself cutting your winners and losers. But of course your losses are still larger than your gains so you end up losing money bit by bit. The people around you start to question your decision to leave your job. You start to question your own decision making process. You realize you were independent and now you are no longer able to make ends meet. You realize you may need to find another job…and you just dig yourself deeper and deeper into a hole. What you brought with you, when you approached trading, was all your hopes and fears of not being able to show everyone that you made the correct choice. Every trade was therefore attached to your ego. Every trade was a reflection of that old choice. You cannot see that each trade is independent from everything you may have believed or experienced up until then: to you, it’s all reflecting poorly upon your personal image. Of course, the only solution is to accept who you are and the decisions you made. Understand that in life, as in trading, you can only make decisions based on the information available up until the decision is made. In hindsight, we all have a 20/20 vision.

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Uncertainty in the Marketplace

Source: http://ranjitkulkarni.com/tag/uncertainty/

loss of control: if you are still searching for some way to control the market, or if you need to feel in control of something or someone, you will never make it. The market is inherently uncertain. You cannot control the market. Any decision-making structure you impose on it will ultimately generate losses and if you cannot accept them, you will never make it as a trader. What you can control is yourself and your actions.

control-comic

Source: http://kateswaffer.com/2013/04/10/dementia-and-losing-control/

Behold: the solution

The first thing is to analyze yourself and admit that you have a problem. Denial is the first step towards debit, in the markets.  Acceptance cannot be gained through performance or other external factors like money or social approval.  Self-acceptance is the root to happiness and peace of mind. Strive to be effective in your trading, not perfect. Manage the losses effectively; they cannot be avoided. Manage your trade effectively when in profit; you cannot know how much higher it can go or whether it’s going to retrace to the entry point.  So repeat after me:

I’m not perfect…SO WHAT!

The most successful people in life are not successful because they’re perfect. They are successful because they know they’re NOT perfect and they full accept who they are. If you do not love yourself and have faith in yourself…can others really have faith in you?

And now for a practical piece of advice? Enter ½ of your normal position size as soon as you see an opportunity setting up, that gives you a good potential profit relative to your logical stop loss. Then, try and enter the second half of the position at your “perfect entry point”. Over time, you should learn to trust your instinct and your decision making process, and rely less on “picture perfect” situations.

About the Author

Justin Paolini is a Forex trader and member of the team at  www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders.

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