Facing Common Trader Issues: Excitement and Overtrading By Justin Paolini

A trader came to me recently for some help with a struggle he was facing: after a period of winning trades, he would get somewhat exhuberant or excited, and would have the urge to trade more.

Sound at all familiar? If you’re facing the same situation or something similar, know that you’re not alone. We all face similar challenges because, at the end of the day, we’re all human and we all want approximately the same things.

In this blog post I will share my conversation with this trader, hoping that it may inspire others as well.

Satisfaction and Excitement

It’s natural to experience some positive emotions after a nice winning streak in the market. Trading is frustrating at the best of times, so when we do get that combination of preparation, skill and luck which produces a nice winning streak, it just feels good!

However, there is a difference between “satisfaction” for a job well done, and “excitement”. In the words of the trader:

…and then I am too happy, just like today [the winning streak] pushes me to trade more (tempting me to do so) but I did not. Resisting the urge was so hard. 

When we get excited or demoralized by a string of wins or losses, chances are that we’re no longer trading the markets and our plans. We’re starting to trade our emotions and our feelings. Here is how I approached the matter.

Step 1: Mindfulness

If you search for Jon Kabat-Zinn on Youtube, you’ll find everything you need in this matter. At it’s core, mindfulness combines deep diaphragmatic breathing and a calm mind. Put yourself in a relaxed condition, isolate yourself from distractions and start breathing deeply.

Then, concentrate on your breath. Bring your mind to a stand-still by focusing on your breath and the air going in and coming out. This will be extremely difficult initially, because the mind starts to wander. It doesn’t know time or space, so it may wander to what you ate yesterday, to the person you met last year or what you need to do tomorrow.

Let the mind wander, take note of what it does, but then bring it back without judging. Just let it happen, but bring the mind back and seek stillness.

Once you hav a calm mind, you can explore your impulse to put on more and more trades. You can also explore anything else by following pain/resistance: if you can’t stay seated and be mindful, explore WHY. Don’t judge it, just get to the source.

The bottom line is that we will be controlled by anything we are not aware of and funnily enough, the things that we are usually least aware of are our own thoughts, feelings and emotions.

When doing a little digging, the trader explained his feelings:

I have a very high drive to be successful, and I don’t really stand for criticism. When I do well, I am demonstrating my ability. When I fail, I feel like a looser. 

This is the demonstration that when trading results generate some kind of emotional response, it’s because we are “taking it personally” in some manner. It is our ego emerging.

Step 2: Question this Automatic Response

The automatic response of this trader is to feel like a loser when he loses a trade, and to feel exhuberant when he wins. It’s important to put things into perspective. The question is:

  • What is the net effect of this reaction? Obviously, the net effect is loss of confidence and self-criticism on one hand, and overtrading on the other. Both responses can create plenty of additional issues in trading so we need to dismantle them.
  • Let’s talk about your reaction to criticism. If nobody ever points out what you are doing wrong, how would you learn what works from what doesn’t? How would you grow personally or professionally?  The obvious answer is that it is impossible to learn without making mistakes. The reality is that gaining wisdom is a painful experience in life as in trading. As a professional trader pointed out recently:  I found my style of trading through a series of expensive mistakes.  The key here is that YOU (the trader) are not the mistake. You can make a mistake (objective reality) but you are not the mistake (subjective interpretation of reality).

However, the trader still needed more reinforcement and said “I really have trouble tolerating mistakes and failures. It is a weakness”.  

Once again the trader’s ego is in the way of his healing process. Pride (I’m too good to lose, I can’t show weakness) can keep us locked in disastrous patterns. There is much to be said about embracing humility, in life as in trading, in order to break negative cycles.

I proceeded to reframe the situation with the trader.

  • What would happen if you are returning from work exhausted, get home, have a shower, prepare to make dinner and you find out the fridge is empty?  The trader replied “I would improvise..it’s not a big deal”.
  • What would happen if, in the same situation, you were expecting a guest and the guest pointed out that you forgot? The trader replied “that would depend on the guest’s tone”.

This is very common: hide the “failures”. So long as I make a mistake and nobody is around, it’s not a big deal. But as soon as it becomes visible to others, my ego can be hurt. However, if I’m so concerned about protecting my ego, and I get into an argument in order to protect my own ego, I’ll probably miss the lesson alltogether.

Each mistake or failure contains a lesson. Each time we take it personally, we usually miss out on the lesson and the chances are that we will make the same mistake again and again, until we stop taking it personally and just view reality objectively.

Understand, deep down, that IT’S OK. We all make mistakes sooner or later! Ray Dalio dedicated a whole chapter of his book “Principles” to the importance of making mistakes and learning. The faster you can go through the cycle, the more cycles you can experience, and the quicker you can learn.

Step 3: Act Differently for 3 Weeks

After the conversation I gave the trader a couple of assignments:

  • actively seek criticism of your work, don’t go on the defensive, and simply thank the person for his input;
  • journal your thoughts and emotions while trading, and while being mindful.

It normally takes a person 2 weeks to create a new habit. So with 3 weeks of this, the intent is to consolidate the habit.

The trader needs to know he can make a mistake, and feel ok about it. After all, if it’s not a life-or-death situation, it’s all small stuff. There’s no need to show off, no need to be a superhero, no need to be pompous.

Just be yourself because, at the end of the day, we all face similar situations and undergo similar experiences in life. We’re all human and as such need to empathize (not criticize).

Over to You

As a final perspective, think about when you were learning how to walk, or when you were helping your children learn how to walk. Envision the reaction to the following situations:

  • Your son/daughter gets on his/her feet and takes a couple of steps, then falls. You see the frown on his/her face. You think “obviously he/she’s upset, and for good reason, he/she should be better than this already…I was certainly better at that age…” and you say “come on, get back up! You should be better than this! Get up and walk! Make me proud!”.
  • Your son/daughter gets on his/her feet and takes a couple of steps, then falls. You see the frown on his/her face. You think “poor thing, he/she’s upset, but it’s only natural”. You go towards your child and comfort him/her, and help get back on his/her feet.

Which child will learn how to walk sooner? Which child will learn that making mistakes is ok in life? Which child will know to reach out to others for support, when unpleasant things happen in life?

The key is once again, get over it. Don’t take it personally. Just learn and move on. If it’s not life or death, what are you really fussing over?

About the Author

Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals and Education from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.

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