Situational Impulsivity
We are all familiar with the stereotype of the compulsive trader. (I am looking in the mirror now)
Similar to compulsive gamblers, compulsive traders are looking for thrills. They like the sensation of putting on a big, reckless trade. They are drawn to the adrenalin rush, the feeling of risk and uncertainty. They ignore risk controls and detailed trading plans.
They trade by the seat of their pants, and pay no mind to logical, objective trading decisions. Although impulsivity is often a character trait that develops as a result of early childhood experiences, it's possible that anyone can act impulsively occasionally.
Almost anyone may act impulsively under the right situational conditions.
One definition of impulsivity is the ability to delay gratification. For example, in a series of experiments, participants were asked to decide between taking an immediate, small monetary reward (that is, $50 right now) and a larger reward given later (that is, $1000 in two months).
Impulsive people tend to take the smaller, immediate reward. They have difficulty delaying gratification. They can't wait for the larger reward. They want what they can get as soon as possible.
But even disciplined people can act impulsively when the conditions are right. For example, when people's psychological resources are taxed excessively, they act impulsively. In one study, participants were asked to remember a list of words, and hold it in memory, while making probability judgments. Their mental resources were pushed to the limit. Under these conditions, participants indicated that they would prefer an immediate, smaller reward to a delayed, larger reward. In other words, they acted impulsively. It's as if they had no extra psychological resources to devote to delaying gratification.
These studies illustrate that the ability to delay gratification depends on the total amount of psychological resources one has available. When people engage in too many tasks simultaneously, they have difficulty maintaining discipline and control.
What are the implications for trading?
It's vital to free up as many psychological resources as possible. If you don't have enough psychological energy, for example, you'll tend to act impulsively. Remember that you need psychological resources to maintain discipline. If you are tired, you'll have difficulty maintaining discipline. If you are overly stressed, you won't have enough psychological energy to devote to making logical trading decisions.
Anything that distracts you and uses up your limited psychological resources will interfere with your ability to stay disciplined. So take steps to ensure that you have as many psychological resources available as possible.
Get plenty of sleep.
Make sure you are rested, relaxed, and ready for action.
Make sure you eat properly and get plenty of exercise. You'll feel more energized and you'll have extra psychological resources to devote to controlling your impulses.
By taking steps to increase your energy level, you will be able to maintain discipline and achieve consistent, profitable results; not only profitable monetarily but spiritually also. |
