“The market is set up to stimulate primitive emotional reactions in traders and take full advantage of them.”
Kenneth Reid, Ph.D
In this section of the website you will find a great deal of information on Seven Factors that contribute to Out-of-Sync Syndrome. The causes are: Aversive Conditioning, Random Rewards, Mind Traps, Scared Money, Procedural Errors, The Trading Trance and Syndrome X
This page describes Procedural Errors, which are natural human tendencies made much worse by Aversive Conditioning and Random Rewards. Follow the links to read about the other causes.
Random Rewards, Mind Traps and trading with Scared Money will undermine your ability to follow a trading plan, leading to additional Procedural Errors such as reactive trading and intuitive trading. Ultimately, this results in excessive risk aversion and negative expectancy from emotional wounding.
Lack of a Trading Plan
An awareness of risk stimulates planning and rule-based behavior. You wouldn’t jump out of a plane without being sure of the exact procedure for opening your parachute and having practiced it on the ground.
If you assume trading is easy or that you already have the necessary skills to trade successfully, then you will fail to formulate an adequate trading plan and fail to develop the skills to execute it flawlessly. You will be tempted to leave too much to discretion. In trading, discretion should be only relied upon by advanced traders. For most traders, discretionary trading exposes you to the risk of random reinforcement, which produces a chaotic and even addictive state of mind. Hello Las Vegas.
One key to managing risk is to take losses while they are still small. Aspiring traders often want to avoid all losses, which inevitably leads to postponing the one loss that eventually becomes a huge losses. The ‘Oh my God’ loss. Additionally, aspiring traders often form definite opinions about where the market is headed and have difficulty changing those opinions at the appropriate time. These two psychological factors: postponing losses and inflexibility, need to be eliminated because they intefere with proper risk management.
The market is setup to stimulate primitive emotional reactions from reactive traders and take full advantage of them, without mercy. No wonder Jim Cramer uses the cry of baby as a sound effect on his Mad Money Show. Rules give structure to an otherwise chaotic flow of information and enable traders to be proactive. Traders without a clear set of rules will find themselves riding an emotional rollercoaster, at the mercy of his or her instinctive emotional reactions to market movement and to gains and losses. These reactions are rarely conducive to profits.
To trade successfully, you need to reduce procedural errors to minimal levels. My FREE Trading Risk Profile is one way to evaluate whether you are prone to make procedural errors. My trader coaching program will help you eliminate Procedural Errors.
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If you take no other action today my friend, be sure you order my Positive (+) Neuroprogramming MP3 TRAINING A WINNING MINDSET. Nothing is more important than becoming proactive about your mental-emotional state while trading. It could save you thousands!
Kenneth Reid, Ph.D