Perfectionists Aren't Great Stockmarket Traders

Submitted by Marco Palmero on 8 August, 2012 - 23:02

Perfectionism Traders

I'm going to make a bold statement. Perfectionists aren't great stock market traders. Interestingly enough, I'm sure statistically speaking, a large portion of share traders would be perfectionists at varying degrees. Why? Trading requires characteristics like excellence, attention to detail, discipline and persistence to succeed.

To clarify any possible misunderstandings: Perfectionism in this article is not about the healthy quest for excellence but more about the psychological disposition of setting excessively high perfectionism.

Symptoms of a Perfectionist Trader

Here are a few symptoms a perfectionist would have in their trading activities (by the way it doesn't matter if they are day trading, intra-day trading, trading options, forex or commodities. Trading is trading no matter which financial instrument):

  • Aiming to always sell at the highest peak and buy at the lowest trough.
  • The urge to ensure that every trade needs to be profitable at all cost.
  • Tend to hold on to losing trades, even past your promised stop loss, with the hope of recovery and keeping your "perfect" trading record clean.
  • Cannot seem to take a loss. If you do take a loss, it is painful emotionally (and quite possibly mentally and physically)
  • Still can't take a loss when it is small. You keep watching those losses grow – the pain and agony of a perfectionist trader
  • Consider a successful day of trading is when you didn't take a loss. A successful trading is best thought of a day where you did your homework and researched the stocks you trade and executed your trading plan with strict discipline, following pre-planned entries and exits.
  • Always seeking a perfect trading system, never happy.
  • Second guess and skip pre-planned transactions
  • Negative self-talk and beating themselves up. After a 'bad trade' a perfectionist would ask/say to themselves "you're a failure, you aren't good enough, what's wrong with you?" A healthy trader would be reassuring themselves that they have followed their comprehensively researched plan and attempting to find out what they can do better next time.

The Pitfalls of Perfectionism in Share Trading

"Buy low, sell high!" All those market commentators proclaim. True, in theory. In practise, realistically you would probably buy at a price above the absolute low and possibly miss the absolute high and sell below the advertised high. Perfectionists would see this as a failure of the model and spirit of buying low and selling high. If they don’t get a perfect entry or exit they would be unhappy and disappointed for the apparent failure. Perfectionists simply set themselves up for failure in trading the markets which such a finite methodology.

There is simply no such thing as flawless trading. Perfectionism is simply a model to which people seek refuge from their fears: typically the fear of failure. Which is a vicious cycle, as you seek perfection to succeed; you are in fact setting yourself up for failure!

Perfectionists set unattainably high standards for themselves. They want to be right all the time. They want 100 percent wins. Every time. But that simply brings disappointment. This fear and lack in trust in the system you researched and planned will hinder your trading profitability. Being a perfectionist in your daily activities will simply undermine and demoralise you.

What's the Solution for Perfectionists wanting to Succeed at Trading?

Trading is a game of probability. Realistically, every trade can't be a win. I'm not saying that it couldn't be perfect (by sheer chance of probability it could), but aiming to be 100% on top is not how the game of probability is played. You throw the dice and hope sixes comes up. If it doesn't, you cut your losses quickly and wait for the next turn. When you're regularly trading stocks, you are timing the stock exchange with multiple entry and exit points and losses are a given part of the game.

There's nothing wrong with being a perfectionist. Being aware of your psychological tendency to seek perfection is much better than being unaware of your disposition. Continuing to trade, unaware of your perfectionism habits would simply lead to more turmoil and losses for trading account.

Being aware of your perfectionistic habits whilst trading will gain you a powerful ally. You will know when to be perfect and when it is okay to accept the current conditions, to be realistic. The important thing is to focus on your own trading goals and being honest with yourself when you catch yourself trying to overly optimise your trades to always catch the perfect trade.

Aiming for excellence rather than perfection. You are in the game of probability and hopefully you've planned to be here for the long term. Aiming for excellence is a much better goal: aim to execute trades as per your pre-researched trading plan, have an entry plan and an exit plan before you initiated a trade.
Other tips:

  1. Be kind to yourself, learn from your mistakes and don't berate yourself over them
  2. Set realistic and achievable goals. (see SMART goals) Bad goal: I want to make 100% on my money. Good goal: I want to make 50% return from my capital. I will make this happen over 12 months, day trading stocks. I will research a trading plan and trust in my research. I will expect to make losses on the way, but it is part of the process.
  3. A good trading day is when you followed your plan: a win or a loss.
  4. Focus more on your activity and not achievement. Enjoy the journey not the outcome. Think about that one for a moment. Trust me.

Have a read of the personality traits which rates traders on three parameters: neuroticism, openness to experience and conscientiousness. Good luck!