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Having Trouble Shaking Bad Habits? Develop Your Self-Awareness!

I was recently helping a trader that has been going around in circles for the past 2 years. Essentially the cycle is as follows:

  • He trades well and, given his technique, is able to generate decent returns given the higher frequency of trades;

  • Then, he starts to be less cautious and even if his initial idea fails, he throws more money at the market trying to get into the same idea.

  • Then, he starts to over-trade dramatically and all caution is thrown to the wind. Various accounts have been decimated like this in the past 2 years.

  • Then, he slows down and “forces himself” to trade less, be cautious and refrain from the bad habits.

  • However, this “self-control” only lasts for a short spell…and the cycle starts again.

There is only one way to get out of this cycle and it has nothing to do with trading: it is called Self-Awareness.


“Awareness” broadly means the capacity that a person has to perceive reality and one’s own self, and reflect upon it.

Human beings have this special gift that other creatures don’t have. Self-awareness is the only true antidote against automatic responses, automatic behaviors and lack of observation, which is so common nowadays.

During our days we are more often than not on autopilot, adopting automatic responses that come from who knows where. Our society is dedicated to “action” and we’re all more human doings than human beings. So, we are not used to using our self-awareness, paying attention to detail, discerning one situation from another.

Less self-awareness has some less evident effects: it leaves us much more prone to negative emotions and negative stimulus because all around us there is an abundance of negativity, and we need to really look for that silver lining. Also, without having a strong awareness of yourself and your surroundings, you will be prone to seeking satisfaction in the physical realm: buying things, thinking your happiness depends on achieving some kind of object or material possession or career improvement (this is called hedonsitic adaptation).

Self-Mastery is Key for a Trader

There are few careers out there where self-awareness and introspection are more relevant or a greater determinate of long term success than in trading.

The fact is that setups can be learned; risk management can be learned; trading rules can be learned…so the weakest link in the whole chain is really the human component. Just like the trader in question: he knows what he needs to know; he has the technique to do well…but he just can’t act in a mature manner. He attempts to repress the impulses he has, but it doesn’t help. Being self-aware does not mean breaking free of emotion or impulse. Self-awareness means that we become mindful observers to those emotions and impulses: we acknowledge them, but we do not act upon them.

Every experienced trader will tell you the same thing: after mastering a functional day-to-day routine, the intangible aspect of trading comes to the surface: how you go about managing yourself and your contribution to the process.

Failure to become a keen observer of your own thoughts, emotions and actions will simply keep you spinning around in circles.

One Key to Success: Journalling

One of the absolute essentials to achieving self-mastery is journalling. Here is what you will need to journal:

your physical and psychological responses to the markets over time.

Your thoughts, emotions and actions will tell you a great deal about yourself, your fears, your frustrations, your automatic responses…and will allow you to paint a detailed picture of how you react under varying conditions.

For example:

  • When markets are quiet, do you record feelings of frustration, finding yourself sifting through charts looking for action, or looking at new instruments out of boredom, or magnifying moves on the 1 min chart to create the illusion of movement? This is somewhat similar to a person standing in a line that has to constantly check his phone.

  • When markets are moving fast do you feel a heightened sense of excitement, lack of proper focus or fear of missing moves? Possibly, you’re no longer paying attention to the markets…you only see $-signs moving up & down all over the place and all your pre-trade planning gets thrown to the wind as you chase after money. This is exactly how most retail folk act. No planning, no awareness. Just jumping into the action.

  • When you are in a losing trade, do you find yourself losing your temper or having feelings of anxiety or depression? Once again this shows a lack of objectivity towards the game. Your ego is attached to your P&L, and your focus is no longer on the long-term results of your trading plan.

By recording these responses you can eventually develop a study of your personal patterns of responses to market activities and you can learn to decipher feelings that have value to you trading (for example, enhanced pattern recognition) and those that don’t have value and are a detriment to your trading (for example, the emotional responses listed above).

How to Increase Your Self-Awareness

Increasing your self-awareness really helps to life a higher quality life, and higher quality of trading. There are 3 things that really help to accomplish this:

  • Silence: the constant day to day noise that we’re exposed to really blocks any capacity to stay in touch with ourselves. Especially if you can retreat into nature (walks in a park, in the woods, taking a hike, etc) you will make it much easier to find peace and get in touch with your own thoughts, needs and emotions and find out what the heck is going on inside of you.

  • Solitude: some people have trouble sitting still, alone, in a room. If this is you, you have a tremendous need for inner growth. But this also means you have a tremendous unexplored potential. If you find it difficult to sit still and just be with yourself for even 5 minutes, you probably lack inner harmony because everyone should be able to sit still for 5 minutes without any issue.

  • Meditation: there is a wealth of academic research on the benefits of meditation on the mind. Meditation can enhance the production of BDNF, which helps the brain regenerate. A quick search on Youtube for Jon Kabat Zinn will lead you key videos that will tell you all you need to know in order to start practicing by yourself.

Over to You

The necessary steps to follow are simple, but they require courage and “safe people” to confide with. The first thing is to accept and admit that you are in fact going around in circles and have no control over your automatic responses. I might suggest telling your wife or husband, telling a coach, or a priest. You need to do this “confession” in a safe environment because obviously you are stripping yourself of ego, vanity, pride..and mking yourself vulnerable.

If you can do this, you will be shown grace. You will still be loved, accepted, acknowledged. And now, you will have nothing more to hide! No more “appearances” to “defend”. No more charades. This is when the healing process can start.

At a very essential level, all psychological issues connected to trading can be traced back to:

  • ego

  • money

  • insecurity

So when doing the exercises above, when journalling, when being aware, try to connect your emotional and/or automatic responses to unmet needs in one or more of those areas.

Of course, if you get to a point where you do need a helping hand, just get in touch.

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