From professional trader to the beginner trader experience losses at the every stage of the trading. However as i have mentioned in previous articles also that there is no 100% perfect strategy exist in the markets which can eliminate the loss completely. Meanwhile many traders find it very hard to accept the loss than the profit. However these traits of the traders often influenced by the ego.
However ego quietly starts impacting your trading performance. By making them believe that you are always right. Rather than accepting the fact that it’s the behaviour of the market or the trade didn’t work out. They start protecting their decision by giving the false opinions
Developing the knowledge about this concept may take your trading to the right path.
What Is Ego in Trading?
Ego in trading is the desire to protect the decision by accepting that your analysis was correct. Instead of taking it as the game of the probabilities they take it on the self esteem. And see as the test of their skill. When they see a trade is going in the losing side, they don’t see this just as the losing position. Instead they consider it as the challenge to their judgement. This make the losing trade more difficult to accept. And it becomes very catastrophic.
Why Ego Is Dangerous
Not Accepting The Mistake: Rather than accepting the small loss, somehow ego forces the trader to believe that the market is wrong. However in the end it double’s down the loss by the continuation trailing of the stop loss or averaging the position.
Revenge Trading: In the strong urge to recover the last trade’s loss. Traders often engage with the revenge trading.
Overconfidence Bias: A series of profitable trade may build the ego. Which leads to abandon the trading rules and risk management. And trading with the over leveraging positions.
Why Traders Take Losses Personally
Traders spend countless hours of studying and analyzing the charts, identify setup, develop the market bias etc. After spending time, they become confident in their bias. However later on this confidence becomes emotional attachment to the trade. Meanwhile this emotional toll driven the loss aversion. As a result it makes the pain unbearable.
Why Traders Take Losses Personally
Survival Instincts Overriding Logic: Trading in the market involves the own money at the risk. However the brain takes it as the challenge for survival hood. Meanwhile the human brain takes it as a physical danger.
The Illusion of Control & Ego: Traders often connect every trade with their personal loss. Whenever a trade or setup fails, the brain perceives it as the personal intelligence loss instead of taking it as part of the probability.
Sunk Cost and Gambler’s Fallacy: Traders often average the losing position. Because they think that accepting the loss is the another name of defeat.
How Ego Prevents Traders From Accepting Losses
Ego prevents traders to accept the loss because it ties the trade with the personal worth. In order to avoid admitting the loss, they often delay the loss by keep trailing the stop loss. Meanwhile it leads to big loss of the trading capital.
The Need to Be Right Over Being Profitable
For many beginner trader their identity evolves around the money. Whenever a setup or trade fails accepting the loss is admitting the mistake. The ego focuses on avoiding the pain comes from the accepting the loss. However ego prioritize the need to be right over the capital preservation.
The Smart Money Identity: Many individuals tie their identity or intelligence to the one particular trade. However the accepting the trade was wrong feels like public humiliation. Therefore the ego keep the trade open to avoid the reality check.
Paper vs. Realized Losses: Until the position remains open, the loss exist only on the paper. Closing the trade often forces the trader accept the psychological realization, a real loss in capital.
Why Accepting Losses Is Difficult
Accepting the loss becomes difficult in trading because it directly assaults the on the ego. Admitting the failed trade feels like personal defeat. Meanwhile this forces the trade to stay in the losing position, until it reverse and saves the face. The strong ego driven traders take it as the personal failure rather than the trade failure. However a losing trade doesn’t decide whether you are losing or the profitable trader.
Why Accepting Losses Becomes Arduous
Ego and Being Right: Trading often attracts every individuals and results oriented people. Meanwhile obtaining the losing trade, challenges your intelligence, competence and confidence.
Hope and the Break-Even: Rather than obtaining the small or manageable loss. Traders stay in the losing, hoping for the bounce back or at least give them a chance to exit at the breakeven stage. However traders often try to avoid the psychological pain by doing this.
Fear of Regret: Booking the loss means it is registered in the p&l records and locked. Meanwhile if you prematurely exit the trade and the market starts moving in your favored direction. You experience intense pain of regret and it makes you hesitant set the loss limit in the future.
How to Keep Ego Out of Trading
Separating ego from the trading is like separating your self worth from the market outcomes. Trader who tie themselves to the trade’s performance often dither to take loss. In this scenario mostly traders opt for the revenge trading. However it leads to abandon their trading rules during the winning trade streaks.
Ways To Separate Ego From Trading
Detach Identity from Results: Treat every trade as the probability, not personal intelligence failure or victory. However every trader’s goal should be the fearless execution, not the urge to be right.
Adhere to Pre-Set Rules: Robotize the trade’s risk management rule by using the strict loss limit. When the market proves your setup or direction wrong. Let the loss limit feature of trade exit from the trade, without trailing the stop loss.
Scale Down Position Sizes: High leveraged position sizing often shocks the ego, when a trade ends in the losing side. Using the reduced lot sizing than the standard lot sing, may help you accept the loss calmly.
Seek Validation Outside of Trading: If you depend in the market to satisfy your ego or identity, you will find yourself under the unnecessary pressure. Develop a hobby outside the charts which help you to reduce the emotions.
Final Thoughts
Ego is one the major challenges in the trading. However it’s forces the trader to think that being right is more important than making money. Meanwhile this approach often involves unnecessary or larger losses and inconsistent performance.
Professional traders accept the losses as a sign of discipline. The sooner you will stop try to being the right in the market. The sooner you will see consistent and steady profits in the trading career.