top of page

Why one's ego has no place in trading

Updated: Nov 22, 2022


It's natural to want to be right, but being right has little value in the market unless your timing is also correct. The problem with the desire to be right, to seek validation from the market for one's ideas, is that it can create conflicting goals.


The primary goal of market participation is capital appreciation. But if one is instead focused on validating their ideas, and in effect satiating their ego, then one may lose sight of that primary goal. Indeed, being right can feel great. Lift spirits, boost mood, but also create a lapse of judgment. One may feel they have the Midas touch and as a result enter in to a poor trade that damages their returns.


On the other hand being wrong can be defeating, cause a sense of anxiety or despair, and thus impair judgment to not take risks where the opportunity to earn a reward may be in your favor.


Recalibrating reactions


It's easy to let the profit and loss of the day, week, or month impact our emotions. We may feel elated with a big win, and defeated with a big loss. But neither emotional reaction is ideal for the reasons expressed above. What is important, instead, is recalibrating to a neutral reaction whether one is winning or losing. That way being right or wrong is much less important than what the end result is.



This sounds easier said than done because it is. We are hardwired with dopamine-driven reward systems that fire off when we're right. We have similar, diametrically opposite neurochemical reactions when we are wrong. But these reactions are part of a signaling process that happens, at least in part, because we continually reinforce it.


Patterns become habits, habits become behavior, behavior becomes ingrained. But just because a certain set of behavioral reactions are ingrained doesn't mean that we're necessarily stuck with them for good. Mind over matter isn't just a cliche saying. It's a concept with a lot of validity, especially as it applies to this context.


The first step toward recalibration is accepting that our reactions are not ideal, that way we can become aware of them and begin to tamp them down. Instead of celebrating every win and mourning every loss, take a step back. Ask what is it that we're doing and why. Much of it comes down to one simple thing: our ego.


When we hold our ego in higher regard than the consistency of our performance in markets, we are creating a self-defeating cycle. When we stop celebrating our wins and mourning our losses in such a way that it impacts our outlook and psychology, we begin to form new neuropathways. Less reactive, more objective perception begins to become normalized.


That is to say, when we stop overreacting to our wins and losses, we start being able to think more clearly. Our brain starts to be less reward/punishment-centric and we start to think more rather than allowing our emotions to take control.


Thinking through what's happened and why allows for more objectivity, which promotes more consistency, which in turn gives us an entirely different outlook on how we react to our performance in the market.


Replacing emotion with reflection


Instead of celebration and mourning, we can replace those activities with a simple strategy: keeping a trading journal. The idea is simple. Every single time you enter or exit a trade, note exactly what you've done, why you've done it, how much you bought/sold, how the trade went, and even consider taking note of your thoughts at the time. How were you feeling? Were you excited? Scared? Did you think the trade through or was it made on impulse? Did you scale in/out or buy/sell all at once?


Most importantly, write down the thesis behind your trade so you can validate whether it worked out. If it did, great. See if there is room for improvement. If it didn't, take it apart and figure out what happened and how you can try to do better in the future.


By having a trading journal you can begin to remove your ego from your trading outcomes and start focusing on logical progression: improving your strategies, consistency, execution, risk management, and focus.


A trading journal can be kept on an Excel spreadsheet, Word document, written in a paper journal, or even using some of the trading journal apps (if you trust them to have all of that info, which they may share with third parties).


In closing


Once you have been keeping a journal for several weeks, focusing on the process rather than just the outcome and how it makes you feel, you should start to see improvement in your consistency, objectivity, and tactical opportunism when putting on or taking off trades.


Remember, the biggest enemy that you'll ever fight in the market is not shadowy hedge funds, algos, or bankers. It's yourself. We all have losing trades, and I call that paying tuition. It's up to you as to whether you choose to learn the lessons being taught by the school of the market.








11 commentaires


Dan_Pitt
03 oct. 2022

Great post, Mayhem! Sometimes I look at losing trades as tuition, and sometimes I see them as the overhead cost of doing business. Eventually we learn to tell which is which, eh? :)

J'aime

Jaynostic
23 mars 2022

Great post! I keep an excel spreadsheet journal but I don't track the emotional side of it, which I can now see the value in. Fortunately (unfortunately) I've been back and forth so much in the past month my emotional response has been dulled.

J'aime
Membre inconnu
24 mars 2022
En réponse à

Thank you!

J'aime

TraderBoog
23 mars 2022

The very good Aaron Rentfrew trading course includes a very nice Excel trade journal template.

J'aime
Membre inconnu
24 mars 2022
En réponse à

Agreed, Aaron is great!

J'aime

Membre inconnu
23 mars 2022

Love this post!

J'aime
Membre inconnu
26 mars 2022
En réponse à

Thank you, my friend! :)

J'aime

Jake
23 mars 2022

Thank you for this!

J'aime
Membre inconnu
23 mars 2022
En réponse à

Cheers!

J'aime

Sign Up and
Stay Updated

Person Analyzing Graphs On Screen

Disclaimer

Information contained in this website should not be construed as investment or trading advice. Opinions expressed herein by Traderade are not investment recommendations and are not meant to be relied upon in investment decisions. The Traderade.com website is not acting in an investment adviser capacity and neither are any authors on this website. Information presented is not an investment research report. Opinions expressed herein may address only select aspects of the companies mentioned and cannot be a substitute for comprehensive investment analysis.
 

Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. We recommend that potential and existing investors conduct thorough investment research of their own and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable but has not been independently verified. Therefore we cannot guarantee its accuracy. Any opinions or estimates constitute our best judgment as of the date of publication and are subject to change without notice.
 

The authors may buy or sell shares without any further notice and may have a position in any shares of any of the companies or asset classes mentioned. By using this website you agree with our full Terms of Use and Privacy Policy.

Navigation

Copyright 2025 Traderade. All rights reserved.

  • Twitter
  • Youtube
bottom of page