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Trader Psychology: 5 signs of out of control trading

Trading is a highly emotional business and there are times when all traders are pushed to their mental limits.  Successful traders know the signs and understand that it is time to slow down.

1) Overtrading:  This is a very common problem for an out of control trader.  If you find that your size is much bigger than normal or you are trading at times that you don’t usually traffic, then make sure you slow down and write down a plan and stick to it.

2) Comfort in bigger losses:  When I hear a trader feeling comfortable about larger than usual losses that scares me.  This comfort tells me that the trader is not thinking rationally as losses should never be tolerated and especially outsized losses.

3) Trading new securities:  If a trader deviates at all from the strategy that made him successful, especially when he is a down streak, this concerns me.  If I have an individual stock trader, that is now all of a sudden trading 3x ETF’s, I see a trader that is chasing after their losses, trying to hit a 5 run home run.

4) One sided trading:  This sign is correlated to having an opinion on the market.  If I see a trader constatnly focused on one side, regardless of what the broad market is doing, this person is so focused on being right that nothing else matters.  It is so important to be right that even if they make up 20% of what they lost it will seem like a victory to them.

5) Justification:  The last sign is a trader that justifies the losses and essentially writes off the first four signs, “I have not hit my limits”, “I have a plan, and you just don’t understand”, “I am seeing the trade well, but my money management sucks”.  These all may be valid points but the bottom line is the trader is losing money and a long break from trading is needed.

If you find yourself exhibiting at least 2 of these points my advice is to make a plan and stick to it no matter what.  In that plan should be stop loss and profit targets, bring your tradnig size way down, set a time for breaks.  The most important thing is to get your discipline back so whatever plan you create make sure that you adhere to this plan.

At Day Trade Well we counsel traders who are struggling with any of these 5 problems or traders that are just looking to get to the next level.  You can sign up for time and if you mention HFL in our conversation I will double the time you have paid for.

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