Your sense of self-control manifests itself into your risk management guidelines. This is true regardless of whether you trade with systematized set of rules or you are a discretionary trader.
According to a recent Boston Globe article by Kevin Lewis, “One way to enhance self-control is to avoid tempting situations. The irony, according to a recent study, is that people who think they have more self-control allow themselves to get into more tempting situations and, as a result, are more likely to give in to temptation.”
Lewis continued, “For example,…smokers who were led to believe that they had superior self-control were more willing to keep a proscribed cigarette in their proximity while watching the movie “Coffee and Cigarettes,” and, as a result, they were more likely to smoke it. Likewise, smokers who were trying to quit and who also felt they had high self-control were less likely to have abstained four months later, on account of not being diligent enough in avoiding temptation.”
This is very provocative and it got me thinking about trading. After you liquidate a position, do you keep the ticker on your screen? If you’ve lost money on the offsetting trade, do you feel compelled to make money back with that specific security?
That is not a financial concern, that is emotional (ego) concern and it illustrates very well why I believe that even intermediate and advanced traders need a way to stay in check with their emotions. It’s helpful to keep a journal to record your thoughts and be brutally honest with yourself. Yoga and meditation can get you to a state where you can get more clear with yourself.
Write things down and review your notes over time. You’ll find that you might not suffer from selective memory this way and you’ll have some evidence of emotional growth. That, or you’ll be horrified by what you write.