Trading Problems Masked As Coping Mechanisms

What's the root of your trading problems?

Do you find yourself stuck in a frustrating cycle trying to fix your trading problems, wasting efforts without results?

Many traders’ approach to solving their problems isn’t working because they’re not dealing with the problem itself but with their coping mechanism to the problem.

As humans, we develop coping strategies to deal with challenging life events that become ingrained in our nature. These strategies become so automatic that we don't spend energy thinking about what the best response might be for a particular problem. Instead, we lean on the coping mechanisms that have worked for us in the past.

When we encounter a triggering event, our automatic coping mechanisms kick in to give us the best chance of survival. While these mechanisms may have served a purpose in the past, they may not be effective in our approach to trading situations.

For example, imagine a trader who, as a child, learned to repress frustration and anger to gain acceptance from her parents. Now, as a trader, she may find herself suppressing these emotions when they arise, leading to a buildup of tension that eventually results in a big and expensive mistake. By relying on old coping mechanisms that no longer serve her well in the trading world, she's creating obstacles to her own success.

So, how can we deactivate our own coping mechanisms and learn new responses that are better suited to the trading challenges we face?

The first step is to identify the root cause of the problem. To do this, it’s helpful to ask yourself:

"What is the event or emotion that I'm trying to avoid or protect myself from by engaging in X trading mistake?"

Let's take the example of a trader I worked with called Ken. He was overtrading and trading impulsively whenever he lost control. In his trading journal, he would often write things like "you need to be more disciplined”, “you should’ve been more patient for the setup”. He was convinced that his problem was a lack of discipline to follow his trading plan.

However, contrary to what one might think, his problem wasn't a lack of discipline. This was merely his coping mechanism to deal with the problem. Whenever Ken experienced a lack of trading opportunities, he felt insecure in his abilities and began to doubt his perception of the market. He would then take impulsive trades to run away from this insecurity and mask a sense of domination and power over the market.

Ken felt that he couldn't be the trader he wanted to be if he wasn't actively trading. His insecurity made him so uncomfortable that he needed to do something to get out of that mental state. He was essentially chasing trades to run away from his insecurity.

By attributing his problem to overtrading and impulsivity, Ken was simply defending his self-esteem as a trader. It was his way of coping with the real problem. If taking no trades meant a blow to his self-esteem, then he needed to protect it at all costs.

What we needed to work on were Ken's insecurities. One might’ve thought the work was on his discipline and calming down his impulsive behaviors with techniques that would ignore the root of the problem: insecurity.

The way to deactivate a coping mechanism is to change the emotion associated with it. In Ken's case, he associated inaction with insecurity, a lack of opportunities with wasting time, and self-doubt about his own abilities.

To help Ken change his mindset, we redirected his urge to take action toward activities outside of the market. Instead of constantly searching for new trades, I encouraged Ken to pick up his journal and write down his thoughts and emotions every time he felt the need for action. To help him distinguish between a legit setup and his urge to take the trade, I encouraged Ken to ask himself three key questions about the setup to understand if it was a high-quality one or not. This helped him raise awareness to then engage in the next step: interruption.

Initially, our aim was not to calm Ken's behavior but rather to channel it in a more productive direction. I wanted him to realize that being a successful trader didn't necessarily mean taking every available trade but rather focusing on high-quality trades.

In the second stage of my work with Ken, we introduced periods of inactivity in his trading sessions. This was a critical step in helping him practice doing nothing when there was no opportunity to be taken. By facing his uncomfortable emotions without resorting to automatic coping mechanisms, Ken was able to learn that it was perfectly safe to be inactive in the market and to disassociate it from his own self-worth.

The more he practiced this behavior, the more he was able to change his perception of inaction. When he made profits by taking no more than three trades per day, he reinforced the positive behavior. It was safe to not be active in the market.

When he lost money, we would create a learning environment and use the lesson as a positive experience that would be useful for further trade execution and the next trading days.

The real work with Ken was helping him rework his insecurity into opportunity. He learned to face his fears and associate a new meaning with inaction.

If you are struggling with your execution in the market, and making trading mistakes, I challenge you to ask yourself if the problem you think you have is really the problem or just a coping mechanism to it.

What are you trying to avoid by repeating those mistakes?

With love,

Sara

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