By learning how to manage your need to be right, you can reduce your trading frequency, improve your trade management skills and add directly to your bottom line.
There is a connection between our need to be right, our self-confidence, and our trading frequency which resides deep in our emotional center. By understanding this connection and learning how to turn it to our advantage, we can make dramatic improvements in many aspects of our trading practice.
It is not unusual to see a trader who over trades his latest and greatest new idea. This is normally explained and understood as an eagerness to get on with exploiting the new idea. In some cases, this takes the form of taking on too many positions and exceeding our span of control or bending the rules in order to get another position on.
This can occur from a confident belief in the quality of our idea and our ability to bend the rules to our own advantage. This self-confidence and the eagerness to act is tied directly to our need to be right and a belief in our ability.
There are very few psychologists who would suggest that traders should not have some level of self-confidence. Without confidence, each and every entry into the market can be excruciating and it is difficult to see how this mental state can be healthy or helpful on a routine basis. You might be successful in the short run with this mindset, but the long-term consequences on your physical and psychological well-being should not be underestimated.
What we are really looking for then is a legitimate level of confidence in our performance and ability. We want to make sure that our need to be right is not interfering with an appropriate level of confidence for taking effective action.
One way to harness the need to be right is to convert that energy and attention into a checklist of performance for each trade. By giving yourself a visual reminder of your trading tasks that you will check off with a green “X” whenever you follow your rules, you get to exercise your need to be right but tie it to a positive action which will improve your disciplined trade performance. This is presupposing that your trading rules that and trading practice actually give you a positive expectancy and an edge in the market.
By applying your enthusiastic energy to a self-regulating task, you will reduce the numbers of trades, reduce your trading frequency, improve your discipline and performance and give yourself the basis determine how effective your rules really are.
Your task then is to have a daily trade checklist which you use to monitor the performance of your trading practice for every trade. It’s a good idea to have a visual and physical and right in front of your face as a visual reminder of your own professionalism.
All right traders! Get out those green felt tip pens and keep score on yourself!