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One Bias That Could Be Causing All Your Trading Frustrations…

Since finding NLP I have discovered a passion for modeling successful people, particularly successful traders.  Because on the face of it trading is very easy. Buy low and sell high. So why can so few people manage it successfully year on year?  It particularly interested me because I for a long time was one of those who found it extremely difficult, until I understood this bias of needing to be right.

Not only did I find this frustrating but it actually hurt as well.  I had always considered myself intelligent and my family and friends would agree with this statement. Learning things for me was fast and easy…

When given a new system to trade I would pick up the mechanics understand the processes required very easily… and yet I could never follow through with them. In fact, there were times in my early trading days when I felt physically sick trying to watch my trades… so I would close them out just so I could relax.

It seems that we are all pre-wired to do things the wrong way almost naturally…

Right Bias quote

 

Self-Sabotage

The Fear of a Loss is self-sabotage and it appears in many different ways:

“Cut your profits short and let your losses run.” Looks wrong, sounds wrong but how many of you have found yourself in this situation” the fear is causing you to exit the trades too early.

“Finally, in profit, I’ll take it now before it turns into a loss.” … cutting your profits short…

“I’ll put my Take Profit in here…” … all take profits are cutting your profits short…

“It can’t go any further it will turn around soon.  So, I’ll just move the stop a little further away to give it room to turn” … letting your losses run…

“I can’t take a loss now it’s massive. I will take the loss on the retrace.” … and run… and run.

“That retrace was too small I will lose a fortune. The market waves I will hold on until it comes back, it always does.” … and run… until you either get margined out or you find that your funds have been tied up for a year so you can’t trade with them… Which if you think about it is a loss. You lost the chance to make money that year…

 

Right, What’s Causing That Fear?

In the last post, we went through one of the causes of that Fear. And that was the misunderstanding the math behind trading. Today we are looking at the need to be right bias that we all have.

Unless you were born and raised on the moon or possibly raised by one of the remotest tribes on the planet.  You will have this need to be right bias.

We were not born with it admittedly, but we are given it from the word go… this is a tree, this is a car, this is a house.  As children, we have no concept of what things are or what they are called.  We are taught that trees are trees and that leaves are green.

“No Johnny that’s wrong it’s not a pink leaf it’s a green leaf” now that you have told Johnny what is right and what is wrong you will expect him to always be right in the future.  This starts the need to be right, we are programmed as children and teenagers that right is good and wrong is bad. And if we remember that wrong is also associated with hell and the devil. You can see why your subconscious try’s so hard not to be wrong.

We get told this is the right way to do things, this is the right way to behave. That’s wrong don’t do that, that is the wrong way to behave followed possibly with a punishment. When you get a question wrong at school your classmates probably laughed at you and may have called you stupid. This all reinforces the belief. It’s another self-fulfilling loop.

And then we have school and exams.  Did you know for example that some traders without any psychological work can be happy with a success rate of 70% ish and yet some need 80% and there are even some who get quite upset with themselves if it falls below 90%.  Can you see where I am going with this… Whatever percentage you were happy accepting in school is probably the same win rate percentage you expect in your trading… subconsciously.

 

The Force is Strong in This One

Have you ever found yourself arguing, not because you believe what you are saying anymore, but more because you don’t want to admit your wrong? Maybe midway through an argument with a loved one or a close friend your start to think they could be right… but it’s too late now. You can’t admit it now, not in the heat of an argument. That’s your inherent need to be right, shining through right there.

Its been given to you by someone else and it has been reinforced by others. And yet it is causing you no end of grief:

  1. The need to be right can often cause you not to start… let’s face it, pretty much from day one we tell you to expect losses. You are going to choose to do something that will end with you being wrong in your own eyes. Because as much as we try and tell ourselves consciously that losses are part of the game, subconsciously we have this deeply ingrained need to be right… So, if you don’t start i.e. don’t place the trade or you wait until someone else tells you to place the trade or places it for you… You can never be wrong. The very base level belief that you need to be right, gives us such an uncomfortable feeling that we just can’t pull that trigger.  Not really understanding the underlying cause…
  2. Trying to Predict the future… If we make our system about predicting the future and we have not addressed our base level belief of being right then each time our predictions are wrong we will take it personally. It will physically hurt, it will not only dent your confidence as a trader, but it’s also going to affect you personally.  Especially if you start telling friends and family where you think the market is going.  Which is normally the first thing they ask.  The way this is normally combated is to join a group and post ideas, then only take the trades when others that you have faith in, agree with your analysis… It would be like going to the Trading Room and asking Andres to look at GBPCAD telling him that you see an entry and asking his opinion… you want his validation a) because you value his opinion and b) if it goes wrong it’s not your fault… you won’t get those bad feelings…  This is obviously Self-Sabotage because you will never be able to trade under your own steam…
  3. Trying to Understand the Market… which is completely futile because there is far too much information for you to process. On your own, it would probably take you a year to process all the information that goes into the market in one day.  So, why do you do it?  You guessed it… your need to be right.  Your base level belief of needing to be right, wants to discover the code to the market, for once it has the code it can be right all the time… keeping you rich and unpleasant feeling free.

 

And there’s more 

  1. Over Trading… Some traders never backtest, telling themselves that it is a waste of time and is not relevant. More often because of the disclaimers that they read about past results can’t guarantee future results etc.… Some traders backtest one currency pair and presume that the system will then work on all currency pairs… obviously madness but it happens.  But for overtrading, the mistake is this, even if the trader did the right thing and backtested all the currency pairs they wished to trade.  Very few think to overlay the results… I mean it’s all very well saying that USDCAD made 112% over three years with a 17% drawdown and GBPUSD made 173% with a 22% drawdown and USDJPY and so on and so on. But what happens when you trade them all at the same time.  What would happen to your account if they all had their worst drawdown at the same time?  It could cause a margin call and that is over trading… And your belief about being right is the key to all of these instances. What if the backtest has poor results that means I’m wrong… So you don’t backtest… Remember most of this happens subconsciously all you receive is the message from your subconscious which comes to you in the form of feelings and if you have a track record of not listening to your subconscious it will just make those feelings stronger…Again this comes about because the disclaimer has already pre-warned your subconscious that it may be wrong because past results don’t necessarily guarantee future results.  You don’t want to spend the time backtesting to possibly be wrong and get that uncomfortable feeling. Easier to just not do it… You test one currency pair and stop there… because what if it doesn’t work on the next one… then you will be wrong and get that feeling again… the need to be right bias. Why overlay the results? What if they show me this system doesn’t work, systems need to work on everything. The idea that a system may only work on one or a few currency pairs goes against our need to be right… being right means that we can form habits quickly to take care of things subconsciously.  But if I’m only partly right… does that mean I’m only part of the person I thought I was…
  2. Over Leveraging… we may have told ourselves, our family or even our friends that trading is our solution, our savior. We will be able to quit our job, make us rich. Give us our Financial Freedom.  Normally this happens just after being seduced to the dark side by one of those hindsight webinars… Look how easy it is to trade, draw a line here and buy, draw a line there and sell. But when we start to trade for ourselves it goes bad and we get those feelings. We can’t look people in the eye as we have not only let ourselves down, we have let our family and friends down.  It’s that base level belief of needing to be right that gives you that feeling.  You have said to not only yourself but others too that you would make this work and now it’s not… so you try to speed things up by over leveraging or maybe you lost a shit load of the family’s money and now you are trying to get it back before anyone notices.  Over Leveraging is Self-Sabotage and it stems from our need to be right.
  3. Forever changing rules… before a system has had a chance to prove or disprove itself. 99% of the time brought about because of the results you are seeing at the time… a string of losses.  This hurts. Literally, we feel uncomfortable, especially if we are following our rules and journaling. All you see on a losing trade is a big fat capital L… Loser.  Quick let’s change the rules and then that feeling will go away… Our need to be right…

 

And more…

  1. Over complicating things… we just won’t accept simple. If it was simple, we wouldn’t need to be taught… I mean I’m an intelligent person making money just can’t be this simple otherwise I would have done it years ago.  Therefore, in order to be right, I must find myself a complicated strategy
  2. Finding the elusive perfect entries… in order to be completely right, we must buy at the very bottom and sell at the very top otherwise I feel like I’m just not quite right enough… Again, this can come down to your exam results… seriously if you averaged 60% in your exams then you are far more likely to be happy with only 60% of the move… because that has become your level of right…  If on the other hand, you were more used to getting results in the nineties then you will feel that uncomfortable feeling unless you are bagging 90% of the move… which of course can be done it just means that you will get more losses because you will be wrong more often.  Let’s reiterate you will still make money and on a good system a lot more… But you have to be able to tolerate more losses… which you can’t because you need to be right… can you see how you self-sabotage with this belief that was given to you years ago by people that aren’t even you?
  3. Limiting Your Potential… the need to be right, often causes traders to settle for systems that make them right or even results that make them right. The problem with these kinds of systems is they are very time consuming and risky. In order to be right, you have to risk more than you receive.  If you a have any beliefs that brokers are robbing gits, trading is impossible, trading is hard, no one makes money or big money.  If you have any of these limiting beliefs then, your need to be right bias will make these all true for you… You cannot get the results to change your mind… you must first change your mind in order to get the better results.

 

Here’s What You Need to Do

Start by letting go your need to be right… in your life, not just your trading. You do this by starting to admit to yourself and others when you make a mistake. Take responsibility for your actions and your results.  Where you are now good or bad is down to you, no-one else.  Start looking at things from the other peoples perspective. What you may believe to be right may well be right for you… but that doesn’t mean it’s right for someone else.

Start trading for pips or R, not money. Begin associating more with successful people rather than unsuccessful people. Believe that trading is easy once you can control your emotions and you follow your rules. Take every signal you get, while keeping to your equity management rules.  Start simple and build complexity onto that. Stop changing rules. Create an equity management plan and stick to it religiously, even if you’re not religious.  Have a system and follow it.  If it helps make your system your sergeant major and a signal to place a trade is not an option but an order, so you’re just following orders.  Making the result separate from yourself.

Please feel free to ask any questions via email:

callum@specialfxacademy.com

Or visit us on Facebook by using the link below and posting a question there, as we are always on hand to help.

 

To Your Success

 

Callum


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Callum McLean

Co-Founder and Trading Psychologist at Special FX Academy
Trading Psychology Coach and Certified NLP Coach. It is my belief that trading is 99% Psychological. And it is by understanding and improving your psychology, that you can be a successful trader. Success is a formula that everyone can and should learn.
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