The Three Vices of Trading
Brett N. Steenbarger, Ph.D.
The following is a short article for Woodie’s CCI traders.
It summarizes several of the
psychological pitfalls that interfere with accurate pattern recognition.
My hope is that
CCI traders can focus on these three “vices” as mental preparation prior to entering the
One of the best ways of becoming an observer to your negative behavioral
patterns—rather than a trader lost in those patterns—is to periodically take your
That means standing back and asking yourself:
Am I falling
prey to one of the vices below?
Remember, observing and interrupting your patterns are
the first steps in altering them!
Your patterns lose control over you as you become better
at not identifying with them.
When you become an observer to your patterns, you are
separating yourself from them.
What great progress that is!
Vice Number One:
Perfectionism is often the chief culprit when the pain of losing exceeds the
pleasure of winning.
Desperately trying to feel good about themselves, perfectionists set
unrealistically high ideals.
They think they will finally be OK if they just accomplish X.
(For X, you could substitute many things, including looks, wealth, popularity, or
Because X is an unattainable goal, perfectionists ironically use their ideals
as a basis for self-criticism when their performance doesn’t match up.
After all, is
achieving X will make me OK, then I must not be OK if I fail to achieve X.
emotional theme of the perfectionist is “
not good enough
Perfectionists are driven to
do more and more because they never feel competent, worthy, and loved as they are.
Thus, even when there’s a profit on a trade, perfectionists will look for the portion of the
move that they did not participate in.
If they caught most the move, they will reprove
themselves for not trading a larger position.
And when trades don’t go well,
perfectionists review all the reasons that shouldn’t have made the trade, should have
known better, etc.
By focusing on the portion of their performance that doesn’t match
their ideals, perfectionists transform successes into defeats, losses into failures.
rationalize their perfectionism as a drive for achievement, but all they are accomplishing
is an undercutting of their confidence.
Perfectionism shows up as negative self-talk and self-blaming.
recognize perfectionism from frustrated, angry feelings when trades don’t work out as
“Beating myself up” is how many perfectionists describe their self-talk.
way to beat perfectionism is to make a concerted effort to talk to yourself the way you
would talk to a good friend in a situation where things went wrong.
Most people know
how to treat others with respect, love, and dignity.
They just haven’t learned to do the
same for themselves.
If you would be more nurturing, understanding, and supportive of a