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Market Psychiatrist Dorn: "Why Are Traders Addicted To Perfection?"

Trading is not about perfection. It is about probability and progress.

All charts, analyses (fundamental and technical) and trading plans are built on probabilities.

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Why then, do so many traders strive for perfection?

Why do so many traders miss trades, waiting for exactly the right entry, beat up on themselves when it doesn't come and the position runs away while they sit there scratching their heads and condemning themselves?

Why are so many traders trying to turn a game of probability into one of near-perfect certainty?

The answer lies in one of the cardinal sins of trading which is PERFECTIONISM.

Perfectionism can be a great help to people in many professions, but can be fatal to a trader. Perfectionists, always trying to find the Holy Grail of trading go from one service to another, from one system to another, looking for a way that they can be right all the time. “YES! Now, I found it! It’s this trading room, or this service, or this indicator! Uh-Oh---Wait... something is wrong here. Not all of these trades are working and I have drawdowns! How can it be that this particular method failed and I actually had to take a loss? Must be something wrong. I will try harder and look for an even better system, a more expensive service, a new and improved guru, some absolutely no-fail software so that I can have ONLY WINNING TRADES.”

This is perfectionism in action. Not only does this type of irrational behavior and belief undermine and demoralize a trader, but it takes away all the enjoyment and fun of being in the markets. It leads to depression with depletion of psychic and physical energy, and leaves the perfectionist to confront his basic and overriding fear — fear of failure. In the extreme, it leads to physical and mental illness, including addiction to prescription drugs, alcohol, or illegal substances as well as other addictions. The pain of failure or the haunting fear of failure is simply overwhelming, and one turns to whatever works to medicate the pain.

Life can be lived forwards, but can only be understood backwards...Soren Kierkegaard

This is what happens with perfectionists. Perfectionists are made, not born. We are taught from an early age by demanding (and often well-meaning) parents that we have to be the best in order to win their approval and the approval of others. Unfortunately, this is totally upside down. Perfectionists share a belief that perfection is required in order to be accepted by others. The reality is that acceptance cannot be gained through performance or any other external factors. Self-acceptance is the root of happiness and the true beginning of personal evolution.

If you have a perfectionist mentality when trading, you are setting yourself up for failure, because it is a "given" that you will experience losses along the way. You must begin to think of trading as a game of probability. Your losses (that you hope will return to breakeven) will kill you. If you cannot take a loss when it is small ( because of the need to be perfect), then you will watch that small loss grow into a larger loss and so on into a vicious cycle of more and more pain for the perfectionist. Trading on hope does not work, because the markets can be “wrong” for a lot longer than you can remain in positive cash flow. The object should be excellence in trading, not perfection. Moreover, it is essential to strive for excellence over a sustained period, as opposed to judging that each trade must be excellent. This is a marathon...not a sprint.

The greatest traders know how to take cut losses and let winning positions run. Perfectionists often do exactly the opposite.

They get in at the wrong time, stay in too long and then get out the wrong time. Perfectionists are always striving and never arriving. The market will find the flaw in a perfectionistic trader and exploit it day after day. The market is your greatest teacher and your most demanding critic, so take this wonderful opportunity every day to learn about yourself and make yourself strong.

If you see in yourself this trait of perfectionism rearing its ugly head, it's OK to get angry at it and even yell or curse at it. Do whatever it takes to acknowledge it and then find a way to fix it.

Here are a few suggestions:

  • Try to appreciate and enjoy the process as well as the outcome
  • Set more achievable and realistic goals for your trading
  • Remember that your self-worth and your worth as a human being to those who love you does not fluctuate from day to day depending on if you win or lose that day
  • Focus less on achievement and more on enjoyment. Trading is serious, but it should be fun and not something one approaches with fear and dread
  • Lighten up. Laugh more (especially at yourself!)
  • Learn from your mistakes, forgive yourself and make peace with your past. Strive to be better...not perfect...just an amazing human work in progress.

If we were always to wait for the most favorable combination of circumstances, no enterprise would ever be undertaken. There can be no end without a beginning--there was never an enterprise in which everything fitted in perfectly, for chance plays a leading part in the affairs of all men.

Obedience to rule does not ensure success, but success, on the other hand, furnishes a canon---a rule of conduct...Napoleon Bonaparte

Thanks and Good Trading!

Janice

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Janice Dorn, M.D., Ph.D., is a financial psychiatrist and chief global risk strategist for Ingenieux Wealth Management in Sydney, Australia. She also offer trading consulting and coaching services via her Web site, TheTradingDoctor.com.