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Trading Psychology: CBT And How It Can Be Applied To Trading Part 1

What is CBT?

 

CBT is Cognitive Behavioural Therapy; this type of therapy helps people to identify and change destructive behaviours and thought patterns that have a negative impact on their behaviour and emotions. These types of destructive behaviours can be anxiety, stress, addiction etc. CBT focuses on changing the automatic negative thoughts that contribute to or worsen moods. Through CBT these are identified, challenged, and replaced with more objective realistic thoughts.

 

So, how can this be applied to trading?

 

Anger and frustration are common when it comes to trading and everyday emotions, the more emotions that come up while trading the less rational we become, our minds wonder, we stop focusing and we end up trading what we want to see and not what’s actually there. Here are some skills you can use:

 

Know what triggers you

With most of us there are a few things that will set us off, if we are aware of them, we are able to rehearse them and practice calming and positive self-talk. Self-awareness when it comes to your triggers can also allow us to take a step back from trading and gather ourselves before we end up in a spiral of losing trades. One especially powerful technique when a trigger occurs is to remind yourself of the costs of anger and how acting on the trigger has hurt you in the past. That way, frustrated behaviour becomes the problem, not the triggering situation.   

 

Relax and breath with your anger or frustration

If you lost your eyesight for a short period of time, would you still put in trades blindly without being able to see the market? The fight or flight response that we all have acts as an emotional blindness so that we cannot see ourselves or the market clearly. By breathing and relaxing you learn how to practice self-control.

 

 

Practice acceptance

It is okay to have some losing trades if you exercise sound risk management in the sizing and management of your position. It is not uncommon for a losing trade to make you reassess your view and eventually make you generate a new idea. A losing trade should be looked at as a learning curve and never a failure. By accepting the loss we can move past the anger and frustration and gain from the lesson learned.

 

We cannot prevent setbacks in life, but we can ensure that we use these as sources of learning and development.

 

Ryan Mowatt, The Performance Coach

 

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