The Problem of Perfectionism in Trading

The Problem of Perfectionism in Trading

By Andrew Menaker, PhD

We bring our personality with us in trading; and one of the most damaging personality traits for a trader is perfectionism.

Perfectionism is not always a personality trait, it can also be something that was very important in another career you’ve had. For example, engineers and software developers have a strong need to be perfect. Perfectionism is a goal in those professions

Not so much in trading. The need for, the search for, the whole idea of perfectionism in trading is often very counter-productive.

The French philosopher Voltaire has been attributed with this wonderful quote that should be applied to trading: ‘Perfection is the enemy of good’. All the good traders I know are far from perfect.

It’s very possible that the skills that lead to success in another career are now holding you back in trading. I see this all the time.

Jerry is a hard worker; working hard is second nature to him.  He worked hard to get into the right college, earned a degree in engineering, graduated near the top of his class at a respected university.

The freedom to be his own boss is what brought Jerry into trading. Jerry wants to be the master of his own destiny. 

With all his hard work, Jerry is still about break even as a trader. What Jerry doesn’t realize is that the skills that made him a good engineer are not the same skills that will make him a good trader.  Yes, there is a certain amount of study involved, but in the final analysis, for a trader, it’s about how you respond to discomfort. Not how much you study the charts, not how many spreadsheets you have, etc.

Jerry does well on a simulator, but with cash he succumbs to the anxiety of interacting with a market that will always have some noise, and varying degrees of ambiguity.

Jerry realizes that his hesitation to enter when he sees his signal and the inability to hold a winning trade are preventing him from succeeding.

Like many perfectionists, Jerry is getting in his own way. And like many perfectionists, interacting with something as messy as the market brings up a lot of anxiety.  But instead of directly dealing with the issue, Jerry spends more time searching for the answer in the charts, and in the spreadsheets etc.

Deep down, Jerry knows the solution to his problem is within him, not in the charts.  But by analyzing the external data (everything outside him) it keeps him busy.  That’s what many perfectionists do; perfectionists stay busy. Keeping busy is a way to keep the anxiety at bay, at least temporarily.

The solution is to also analyze the internal data (what’s inside you).  It’s the internal data that causes you to hesitate, bail out of trades too early, ignore your stop, etc.

Yes, we must study the factors that cause the market to move, however, in my experience as both a trader and a coach, I assert it is more important to know what causes you to move. It’s the internal data…the emotions of fear, anxiety, the need to prove yourself, the things that make you uncomfortable, that’s the stuff that must be dealt with. Many traders know this, but for a variety of reasons they don’t analyze their internal data, instead they continue doing the same thing over and over, getting the same results and never getting anywhere.

Andrew Menaker PhD is a trading psychologist; you can read more about him at http://www.andrewmenaker.com