Psychology Trading Systems Why Traders Lose Their Discipline

When traders lose money, they often attribute the problem to a lapse of discipline. Such a lack of consistency, however, is actually the result of many different problems--not the cause. Traders lose discipline with trading for the same reasons that dieters lose discipline with dieting or people getting in shape lose discipline with exercise. Quite simply, our moods, needs, and mind states of the moment tend to overwhelm our longer-range intentions. We pursue short-term pleasures (and avoid short-term discomfort) at the expense of longer-term rewards.

Here are some common reasons why traders (and most other human beings!) fall short of being fully intentional:
  • Environmental distractions and boredom cause a lack of focus - All of us have limits to our attention span and these are easily taxed during quiet times in the market;
  • Fatigue and mental overload create a loss of concentration - The demands of watching the screen hour after hour make it difficult to be sharp, creating fatigue effects that are well-known to pilots, car drivers, and soldiers;
  • Overconfidence follows a string of successes - It is common for traders to attribute success to skill and failure to situational, external factors. As a result, a string of even random wins can lead traders to become overconfident and veer from trading plans--especially by trading too frequently and/or trading excessive size;
  • Unwillingness to accept losses - This leads traders to alter their trade plans after trades have gone into the red, turning what were meant to be short-term trades into longer-term holds and transforming trades with small size into large trades by adding to losers;
  • Loss of confidence in one's trading plan/strategy because it has not been adequately tested and battle-tested - It is difficult to tolerate even normal drawdowns unless you have confidence in your methods. This confidence does not come from mere positive self-talk. Rather, it is a function of testing your methods (historically and in real-time) and seeing in your own experience that they truly work;
  • Personality traits that lead to impulsivity and low frustration tolerance in stressful situations - Psychological research suggests that some individuals are more impulsive than others and less conscientious about adhering to plans and intentions. These personality traits often are accompanied by stimulation-seeking and a high degree of risk tolerance: a deadly combination.
  • Situational performance pressures - These include trading slumps and increased personal expenses that change how traders trade and lead them to place P/L ahead of making good trades. By worrying too much about how much money they make, traders can no longer follow markets with a clear head;
  • Trading positions that are excessive for the account size - This is much more common than is usually acknowledged. It creates exaggerated P/L swings and emotional reactions that interfere with cool, calm planful behavior;
  • Not having a clearly defined trading plan/strategy in the first place - Interestingly, many traders do not consider themselves to be discretionary traders, but in fact do not have a firm, explicit set of trading rules that they follow. It is difficult to be consistent with a plan (and to evaluate your consistency), if you don't have the plan clearly laid out;
  • Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality - All too often, traders veer from their plans because those plans are ones that they feel they *should* follow, but that don't truly come naturally to them. These departures from discipline are actually unconscious attempts to trade in a style that is more in tune with the trader's skills and talents.

As you can see, not all discipline problems have their origins in the trader's psychology. Many times, the loss of discipline reflects problems with trading itself. Discipline in trading is not so different from "discipline" in a romantic relationship: if you're doing the right things, there's little need or desire to stray. But if your trading is not meeting your needs, it's all to easy to break your trading vows!

Brett Steenbargar can be contacted at Brett Steenbarger
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great article

I hae read a lot of Dr Steenbarger's stuff, and like this article I find them very informative and helpful in classifying what we all must know/experience as traders, as well as attempting to provide tips/solutions to mainly psychological issues affecting one's own trading. Thanks for the article and your continued contributions here and elsewhere.
Nailed it! I make all these common mistakes. I should probably print this out and keep in on my desk and read it every morning before I start trading.
Is easy to know our mistakes. But is very very hard to correct it! On living habits or trading.....human weakness
Hardly authors give solution on how to become disicipline....haizzz
Dr Steenbarger writing on the subject of the psychology on trading is very stimulating and definitly worthwile reading and studying. This article is not ecxeption, even more fruitful when read in conjuction with many other works written by that same author, and easly available on Amazon and on intrnet. The benifits of serious studies of the subjects related to trading are very real. I highly recommend Dr Steenbarger works.
cant agree more... and just made such mistakes recently.. earned 3 weeks, and giving back all the gains within 4 days.
Emotions regulation

The most important cause of losing discipline is emotions , if all the above criteria are met , emotional hard wiring is required for when market becomes extremely irrational .
Good article but he has missed two or more of the most important or more important reasons , mistakes , amygdala hijackings and stress responses .

An Amygdala Hijack is an immediate and overwhelming emotional response out of proportion to the stimulus because it has triggered a more significant emotional threat. The amygdala is the part of our brain that handles emotions. During an Amygdala Hijack, the amygdala "hijacks" or shuts down the neo-cortex.
The prefrontal cortext holds the circuitry we need for abstract thought. It allows us to concentrate on the task at hand while storing useful information in temporary storage for later on. It also prevents you from performing inappropriate actions and is basically the command centre for the brain.

Search on google for "amygdala+hijack" or "neocortex shutdown"
You probably HATE to make mistakes. When you have high expectations for your performance, it makes it hard to stay composed.

Your competitive drive pushes you to further develop your physical and technical ability. However, some traders who maintain extremely high expectations are prone to become frustrated and dwell on their mistakes.

You might dwell on mistakes and beat yourself up for missing a break out . The downward spiral of one mistake leading to another, and another, is all too common.

Some try to AVOID making mistakes. You might worry about letting yourself down if you make a mistake. Trying to avoid mistakes will keep you from taking risks and cause you to play “safe”, which often leads to more mistakes.

You will experience frustration , anger , boredoom , anxity and stress.