Self-Sabotage Revealed

In my peak performance training with traders, I give a strong psychological slant to the concept of self-sabotage. Self-sabotage typically occurs when one lacks the discipline to act in one's own best interest. For example, when you have dessert, knowing it's taboo because you are trying get healthy, you might call that self-sabotage. Or perhaps you know you need to exercise and you really feel good when you do so, but somehow you just feel lazy and want to skip the exercise period. Self-sabotage occurs in trading in many instances:

  • When you know you should follow the ten tasks of trading, but you don't.
  • When you know you need to determine if your system will really work, but you just trade it anyway.
  • When you know you should develop a business plan for your trading, but somehow that just seems like too much work.
  • When you know you need to put a stop loss order in on a trade, but you don't.

These and numerous other examples characterize self-sabotage. And these examples of self-sabotage typically occur when you have internal conflict between various parts of yourself and when emotions pop up that result in behavior that is not in your best interest and when you just avoid doing what's important for success.

Many traders, however, avoid thinking about self-sabotage in this manner because they don't like to go inside of themselves to see what is going on. They prefer to think technically about systems rather than notice what their beliefs are and whether or not they are useful. As a result of this tendency, I've developed another definition of self-sabotage that everyone can relate to: repeating the same mistake multiple times.

My definition of a mistake is when you don't follow your rules. And if you don't have rules, then everything you do is a mistake. And self-sabotage occurs when you keep repeating the same mistakes over and over and over again.

For example, you don't raise your stop when the market makes a new high. When you skip it once, and your rules say you must do it, then it's a mistake. When you do it three times in the same week, then it is self-sabotage. When you develop this attitude, can start keeping track of your mistakes and see how much they cost you.

For example, suppose you are about to be stopped out for a 1R loss. (The definition of a 1R loss and R-multiples in general is explained in my book Trade Your Way to Financial Freedom and there is a brief description in my Tharp Concepts section of the website.) You don't want to be stopped out, however, so you cancel the stop – which is your mistake. The position keeps going down and eventually you get out with a 3R loss. That mistake cost you 2R (i.e., instead of a 1R loss you got a 3R loss).

Now suppose you have a system that makes you 100% per year. However, you make a 2R mistake each week. At the end of the year, instead of being up 100%, you have lost money just because of your mistakes. Now can you begin to understand how trading reflects your behavior and that one of the critical things that you must do as a trader is to eliminate mistakes.

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