How to Stay Objective in a Trade

There are times when all traders question their logic for entering a particular trade. Here Dr Doug examines how to maintain your objectivity when trading.

Perhaps one of the most challenging skills in becoming a successful trader is Maintaining Objectivity in trades. While there are a variety of factors which contribute to you losing objectivity in a given situation, there is a clear and defined path you can follow to re-gaining it. In simple terms, it is called Thinking Backwards.

The Issue
More times than not, losing objectivity occurs when you micro-manage a situation. It may be in the form of watching the tape or over-thinking a position but in essence, you lose sight of the MACRO picture or WHY you were in the trade in the first place. As a result, you make poor decisions which generate poor results.

How Can you Overcome This?
Know your reason ?why?? and ask yourself frequently:

  • Why am I in this trade? 
  • Why do I like/not like this position?

These questions will help you to continually clear up your picture as data points (or your own bad habits) attempt to fog up your view.

Red Flag
The more difficult it is for you to answer your reason WHY, the more likely it is you have lost objectivity in the situation.

The Solution ? Thinking Backwards
1) Acknowledge that you have lost objectivity. Now that you are aware of the problem, you can begin to deal with it.

2) Remove yourself from the day-to-day noise and write down what your original thesis was. Clearing off your mirrors will tell you what direction you are moving.

3) Begin to Think Backwards by creating three columns with the following headings (Support, Do Not Support, Undecided). This will force you to Objectively lay out and evaluate the situation.

4) Talk to yourself: ?Based on the data points I wrote down in each column, if I did not have a position on, what would I do?? Asking yourself this question forces you re-evaluate the trade from an unbiased perspective.

5) Compare your response with your original position/thesis to create a WIN-WIN

WIN No 1:  is if there is a discrepancy, you can be proactive in creating a new game plan which may involve taking some or all of the risk off or even reversing the position.

WIN No 2: is if there is no discrepancy, you have instilled deeper conviction in your original thesis and can then hold or even add to the position.

In closing, losing your way is not nearly as important as how long it takes you to get back on course. We all get lost from time to time and the skill of Thinking Backwards can serve as your map to Re-Gaining Objectivity in your trades.

Keep your eye on the ball and your head in the game!

Doug Hirschhorn has a Ph.D. in Psychology with a specialization in Sport Psychology. He was a Division I baseball player and former floor trader at the CBOT. Doug has over 10 years experience and is an expert in the field of Peak Performance. Doug consults to professional athletes, corporations, multi-billion dollar hedge funds, and high net worth individuals. He is the co-author of The Trading Athlete and is a regular columnist a.k.a. “The Head Coach” for Trader Monthly Magazine. As a Performance Coach, Dr. Doug has conducted hundreds of workshops for thousands of individuals in the area of achieving Peak Performance. Topics include focusing under pressure, decision making during uncertainty, setting goals, motivation, as well as hiring and managing high performance teams. Dr. Doug understands what it takes to get an edge and his dynamic personality makes him both entertaining and highly effective. Doug not only motivates his trading clients, he motivates them to perform. He can be reached at and is available to be retained for individual/group coaching, workshops and other speaking engagements. Dr Doug will be a speaker at the Strategic Trading Institute Forex Trading Expo on 7th September 2006 also at the Wizefest Conference in October

Doug Hirschhorn has a Ph.D. in Psychology with a specialization in Sport Psychology. He was a Division I baseball player and former floor trader at th...