Physical and Psychological Determinants of Self-Control ......
Successful traders are disciplined. They are calm and rational. They don't let emotions like fear or greed unduly bias their decisions. They formulate well-defined trading plans and are able to stick with them. They avoid the urge to act on impulse. Trading in a systematic, disciplined fashion is preferred, but as we all know, traders aren't always disciplined. It's hard to always stay controlled, especially during volatile market conditions. The slightest bit of news can make the masses react (especially these days). A bearish market can suddenly turn bullish, at least until a new piece of news creates a sense of panic. The winning trader maintains rationality during times of uncertainty, however. Winning traders know maintaining self-control is vital to success.
It takes physical and psychological energy to maintain self-control. For example, research studies have shown that for many people, there are limits to how much self-control one can exert. When people are asked in the laboratory to complete a series of tasks in which self-control must be maintained, they eventually become fatigued and have difficulty maintaining self-control on subsequent tasks. This phenomenon is commonly observed in scalpers who go in and out of the market repeatedly. They report that making trade after trade produces fatigue to the point that it is difficult to continue trading. Self-control takes energy, and the more self-control you must exert, the more energy it takes to keep going. As with any strenuous activity, you eventually run out of energy, and it's hard to go on. Thus, the most obvious way to maintain self-control over the long run is to build up physical and psychological energy. How can you save or build up physical and psychological energy? Specifically, you can limit the number of trades you make per day or per week, and thus, limit the amount of energy you expend. You can also make sure you sleep soundly, exercise regularly, and eat nutritious meals. This will also ensure that your physical and psychological energy are at peak levels.
Why do people lose self-control? There are many possible factors. Some reasons are purely psychological. Sometimes people get fed up trying to maintain self-control, and decide to just give up. It's like when you are riding a bicycle up a steep grade and you get tired. Eventually you feel like taking a break. The same thing can happen when trying to maintain self-control, such as when you patiently try to resist selling early or making an impulse buy. At some point, you may think, "I'm tired; I want to just take it easy and cut loose." Some traders give into temptation, but others don't. Your thinking styles can make you give up. What you think in moments when you want to give up can dictate what you do. If you believe you can go on, and push yourself to persist, you will continue to maintain control. In addition, if you believe there is value in pushing yourself to maintain control, and that a big reward is waiting for you if could just hold out long enough, you can do it. But if you believe it is not worth the effort to persist, or if you believe that you can't go on, then you will give up. What you think can make a difference. If you forget the consequences of giving into an impulse, you will lose control. But if you are aware of the consequences and the thoughts that predispose you to give up, you can fight back and maintain control.
There are many factors that may predispose a trader to lose control, but it's vital to address physical and mental processes. From a physical standpoint, the more you are rested and ready to take action, the easier it will be for you to maintain control. From a psychological standpoint, if you are aware of the reasons you need to maintain control, and if you truly believe that you can maintain control, you will persist. And when you can maintain self-control during times of crisis, you will profit.
Source: Mental Edge Newsletter
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