The Mind of an Ego Trader – 10 Actions

2023年10月17日

We always hear of the two most dangerous states of trading.

Fear and greed.

But I think there is one more state, that really drives a trader to financial collapse.

EGO.

Ego is thinking you’re always right where you ignore risk and caution.

It’s the voice in your head that tells you to make risky choices because you believe you know better.

To overcome being an ego trader, we need to go inside the mind of one.

Let’s start…

Ego traders overtrade

One of the most common pitfalls of ego trading is overtrading.

This is the act of buying and selling markets way more than you should.

They believe that the more they trade, the more profits they will make.

Solution:

Adopt a well-defined trading strategy and stick to it. You need to know how and where to enter your trades with strict risk management.

Remember, quality should always be prioritized over quantity.

Ego traders like to revenge Trade

Ego traders refuse to be wrong.

They’ll take a trade in one direction, bank a loss.

And then immediately get in again, but in the opposite direction – to make up for losses.
Their goal is not to trade well but to recoup any losses ASAP.

This behaviour is often driven by the ego’s inability to accept a loss. And this will drive them crazy until they blow a big portion of their account.

Solution:

Acceptance is key.

Every trader is going to take losses.

You need to take the loss (see it as the cost of trading), and come back the next day.

Take a step back, analyse the situation objectively, and stick to your trading plan.

Ego traders ignore risk management

Egotistical traders think like this.

“I want to grow rich quickly and refuse to only bank 3% to 4% of my portfolio per trade”.

They instead risk 5%, 10% and sometimes go full port.

They have this invincibility complex, that the more money they risk the more likely they’ll build their account quickly.

But this is reckless and your portfolio won’t last long. This will often lead to disproportionate losses.

Solution:

I sound like a parrot by now.

Always adhere to your risk management rules.

Determine your risk tolerance, set risk-reward ratios for your trades, and never risk more than you’re willing to lose on a single trade. You know this!

Dismiss Market Analysis

Ego traders are emotional.

They mainly trust their feelings, their jiminy cricket voices and their instincts over solid and proven market analysis.

This will obviously lead to discretionary trading decisions, which will eventually lead them with no strategy, no discipline, no rules, and no portfolio.

Solution:

Become a trading machine.

Think like a robot and always base your decisions on thorough market analysis.

This includes both technical analysis (price trends, indicators, etc.) and fundamental analysis (economic, financial, and other qualitative and quantitative factors).

Ego traders blame everything

Ego traders often blame the market, their broker, their children, the media, or unexpected news for their losses.

You need to grow up and take on the mature approach. Every financial decision and action you make, is solely your responsibility.

Solution:

Take responsibility for your actions.

Understand that the market is unpredictable and losses are a part of trading.

Don’t trade if you’re feeling distracted,

Don’t trade if you’re feeling you’ll blame something or someone.

Learn from your mistakes and learn to humble yourself before the market does.

Ego trader are trend top and bottom pickers

These are the guys that literally try to ‘predict’ bottoms or tops.

They go against the current trend, and instead guess that the price will turn from here.

They give you every reason why the market will turn.

They know privy info that no one else does (even though all info is in the public domain).

They know strategies and indicators that make these predictions (even though all indicators are based on past data).

They see and feel out of their asses about change in trends.

And when they’re wrong (which most times they are), they find every reason, news event and indicator to guess when the market will turn.

This usually results in entering at a bad price and subsequently facing a huge loss.

Solution:

Leave the tops and bottoms.

Seriously, ignore the first 10% of the bottom. Leave 10% of the top.

Claim the 80% market move when the trend has confirmed and is showing strong momentum.
Enjoy going with the trend not against it.

Ego traders over leverage

It confounds me that traders want more leverage.

They show off about 20 times, 50 times up to 500 times.

You know what that means right?

You can lose 20, 50 or 500 times the money you put in.

Leverage is a double-edged sword.

You desire the big wins and only think of the big wins.

When then you are wrong (and you will be), you end up losing a colossal amount.

Solution:


Use leverage responsibly.

Lower the leverage, the better you can manage your risk and reward management.

Ego traders disregard stop losses

Stop losses are designed to limit a trader’s loss on a position.

However, there are two types of ego traders.

The ones that trade naked (without a stop loss) and the trade goes heavily against them where they lose their hat.

Then there are the ones that put in their stop loss. But then they move their stop loss FURTHER away where they can risk more.

Once this happens, they marry into their trade.

And they’ll keep moving the stop loss away again and again and again and then BOOK.
Gone.

Solution:

First rule – Always set a stop loss.

Second rule – NEVER move your stop loss where you can risk more.

Super important.

Ego traders dismiss discipline

They have major commitment issues.

They choose their days and times.

They trade now and then when they feel like it.

And this dismisses the discipline of taking every trade, one needs to take to build a consistent portfolio.

Solution:

See trading as a business. See trading as a job.

See your trading strategy as your boss.

Work accordingly like your life and livelihood depends on it.

Discipline is key in trading.

Maintain your discipline and eventually it’ll turn into integration.

Then you’re sorted.

Ego traders fail to adapt

The market is constantly changing.
There are always new markets.
There are always new platforms.
There are always new brokers.
There are always new innovations and features.

And yet ego traders, stay put.

You need to learn to adapt to market changes.

You need to constantly update yourself as a trader, your strategy, your watchlist and stay with the times.

With discipline, a clear plan, and a bit of humility, traders can better navigate the markets and improve their chances of success.

Let’s sum up the Mind of an Ego trader so you know how to overcome it.

• Ego traders overtrade
• Ego traders like to revenge Trade
  
• Ego traders ignore risk management
  
• Dismiss Market Analysis
  
• Ego traders blame everything
  
• Ego trader are trend top and bottom pickers
  
• Ego traders over leverage
  
• Ego traders disregard stop losses
  
• Ego traders dismiss discipline
  
• Ego traders fail to adapt