How to Exorcise Your Trading Demons » Learn To Trade The Market (2024)

How to Exorcise Your Trading Demons » Learn To Trade The Market (1)As portrayed in Hollywood movies, when a demon takes over a person’s mind that person is said to be ‘possessed’ by it. They no longer have control over their own mind or even their actions, because the demon has taken control.

As a trader, you may feel like you are possessed by a trading ‘demon’ sometimes, as if you have no control over your actions in the market, like someone else is controlling you. You find yourself entering trades when you know you shouldn’t, exiting positions when you know you shouldn’t, or risking more than you know you should. It can truly seem as if you have no control over your own actions in the market sometimes. Almost like your possessed! Sound familiar?

In today’s lesson, I am going to discuss some of the most vicious trading ‘demons’ that possess traders’ minds and give you the power to exorcise them once and for all. This lesson is about taking the negative and turning it into positive. I am going to show you how to demolish the negative thought patterns and habits holding you back from achieving the trading success you want and deserve.

Trading Demon #1 – Hesitation. Second-guessing

You see a potential trade setup, it looks ‘perfect’. Then, instead of setting it up and walking away until tomorrow and staying focused on the daily chart time frame, you start looking at the 1-hour chart; “oh, this market looks different now”, you start thinking. “Maybe I shouldn’t take this trade after all? The 1-hour looks like it’s in a downtrend even though the daily is in an uptrend, damn what do I do?” Let the second-guessing begin.

You decide not to enter the trade after exhausting yourself for 2 hours searching and finding things online that agree with your reasons of why you shouldn’t take the trade, even though the setup is there on the daily chart and objectively you know it’s perfect. This is a prime example of how the ‘hesitation demon’ can infect your mindset and lead to destructive actions in the market. Your mind is a very, very powerful tool but it can also trick you if you aren’t careful. Indeed, you can think too much, over-analyze and obsessed about the tiniest little thing that you don’t like about an otherwise perfect looking trade.

These types of scenarios are why most traders lose. People over-think, they lack confidence, they generally just give in to all the negative voices in their minds about why a trade might not work out. This is the hesitation demon at it’s best (or worst I should say).

Here’s what to remember about hesitation in trading:

  • You can find anything online to support your assumption or feelings! It makes no sense to find something wrong with a trade and then go spend hours obsessing over it. You WILL always find what you’re looking for on the internet. You can find ‘data’ to support any conclusion you’ve come to, but that doesn’t mean its right or that you should look for that data.
  • Remember, all we should be doing is identifying our trading edge and then executing the trade when the edge is present. Trying to find every little reason why a trade won’t work shows a complete misunderstanding of the random distribution of wins and losses for any given trading strategy or edge. It shows you are trying to be in control of the market, which his impossible. Your goal as a trader is to learn your trading strategy, then master your trading strategy and follow it to the T. Hesitation has no place in the successful trader’s mindset.

Trading demon #2 – Arrogance, co*ckiness / over-confidence

Letting arrogance or over-confidence possess your trading mindset is something that can cause you to spiral out of control and blow out your account in no time at all.

What typically happens is that traders will get lucky and have a nice streak of winning trades or a really big winning trade (that they risked too much on), they then start feeling like they know it all, like they have some special gift for trading bestowed upon them by the ‘Gods’. However, nothing could be further from the truth.

It’s also been widely studied and reported that most traders and investors vastly over-estimate their own abilities to time the market as well as what their own returns in the market have been. In an interesting quote by Charles Darwin, he says that “ignorance more frequently begets confidence than does knowledge.” Meaning, that being confident is much more likely a result of simply being ignorant and unware of all that you don’t know, than it is from being knowledgeable or intelligent. Intelligent and knowledgeable traders are typically well-aware of the risks involved as well las how easily their minds can become ‘possessed’ by trading demons like arrogance and over-confidence, as a result, rarely will you find a consistently successful trader who is also arrogant and co*cky.

As discussed in the article How Overconfidence Hurts Investors, only education has the potential to overcome the related problems of incompetence and overconfidence. Unfortunately, it seems that most investors would rather go through life blissfully ignorant than spend the time to educate themselves on the science of investing.

Don’t let arrogance and over-confidence lead you down a path to trading account blow-outs. Instead, learn how to trade properly, soak up the knowledge of those who have come before you and who have made and learned from many trading mistakes. Don’t be the ignorant trader slinging his money around like faux rich man, only to quickly lose it all. Instead, be the calm, collected professional who is on a never-ending quest to become the best trader he can and who knows he doesn’t know everything.

Trading demon #3 – Fear

Do you want to stop being afraid of entering trades? There is one thing that can you easily do that will basically eliminate fear from your trading mindset.

Before we get to what that thing is, let’s discuss some common scenarios that traders find themselves in when they are possessed by the trading demon:

Often, traders become fearful of entering a trade because they are worried it will not be a winner or they are worried they will lose money. However, both fears are based in irrational thinking and a poor understanding of the realities of trading. Being afraid that a trade will not win is something you will no longer experience once you truly understand that there is a random distribution of wins and losses for any trading edge. Being afraid of losing money is something that shouldn’t happen if you are managing your risk properly per trade and your expectations are in-line with what is possible in the market.

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The number one way to eliminate fear in trading is to lower the amount of money you are risking per trade until you aren’t afraid anymore. People become afraid of trading once they suffer a couple bigger than expected losses and they start seeing their hard-earned money getting whittled away faster than they thought possible. Any trader who isn’t a risk manager first, is going to lose money, usually quite fast. I have discussed the fact that an easy way to gauge if you’re risking too much or not is to test if you can sleep with your risk per trade or not. If you find your mind is preoccupied with your trades, then you’re risking too much. Dial-down your dollars risked per trade until you literally no longer are focused on the money and are instead focused on the trading.

Trading demon #4 – Regret

The regret demon can wreak an equal amount of havoc on your trading account as any.

How many times have you felt consumed by regret after not entering a trade you wanted to? Or, how many times have you regretted not staying in a trade longer, because it exploded in your favor right after you exited for a tiny profit? There are many ways regret can creep into your mind because of different experiences in the market. However, one thing is certain, you need to learn to eliminate regret from hurting you, because if you don’t, it can destroy your trading account just as quickly as any of the other ‘demons’.

To stop being controlled or consumed by regret, you need to stop hesitating on perfectly good trades that meet your pre-defined criteria and to stop hesitating you need to stop being afraid (see how all these demons work together to work against you?).

It all starts with having a well thought out trading plan that you follow with discipline. If you start deviating from your plan, you will start to put yourself in situations where regret can sneak in. You don’t take a trade that fit with your plan because you hesitated and were afraid? You are going to regret that. If you regret it then you are going to start to feel like you want revenge on the market, which is the next trading demon we will discuss.

To be a successful trader, you really do need to have ‘ice in your veins’, meaning, you have to have the ability to move on and get back on track no matter what happened on your last trade. When you start letting your previous trade or mess-up in the market influence the next decision your make, you are basically becoming a purely emotion-fueled trader, and those are the type that burn out very quickly. A professional trade doesn’t let regret control their actions in the market, because they know the market will be there tomorrow and they use each failure or mistake as a chance to learn and grow as a trader, so that they don’t make that same mistake again.

Trading demon #5 – Revenge

As I mentioned above, if you start letting regret sneak in, it will soon be followed by revenge. Trading with a sense of needing ‘revenge’ is a very slipper slope that perhaps faster than anything else can lead to you blowing out your account.

Revenge can sneak in after regret as mentioned, or it can sneak in after a large loss. Essentially, revenge and anger are the same problem for a trader. You may feel angry after missing a good trade (because you hesitated and over-thought it) or you may feel angry you exited too soon and didn’t stick to your trade exit strategy, whatever the reason, anger will quickly lead to a revenge trade, and these can be the most dangerous kind.

A revenge trade is usually one made with haste and with far too much money risked. Typically, traders feel like they want to ‘make back’ money they just lost, or they may feel like they want to make money because they missed out on a good trade. Revenge trades almost lead to bigger that desired losses, which then leads to regret and that either leads to fear or more revenge. This is all like a big trading-demon-cycle if you will, where one demon leads to another and another and so on, until you have no money left.

The best way to eliminate revenge trading is to eliminate the feelings that cause it. So, don’t stray from your trading plan and take stupid trades that lead to regret and don’t risk too much per trade leading to large losses; both things lead to revenge trades which leads to more losses. You must break the cycle somewhere. So, do it here and now.

Trading demon #6 – Hope or Greed

Hope might seem like a weird thing to label as a trading ‘demon’, but let me explain…

How many times have you been in a trade and instead of taking profit where you had planned to, you move your profit target further out because you HOPE the market will keep going in your favor so that you can make a bigger reward (greed)?

You see, hope and greed are close cousins in the market. Traders get greedy when they get hopeful. They start hoping that by taking more trades they’ll make more money, or they start hoping they will make a huge reward by doubling their risk; they’re being greedy.

There’s an old saying on Wall Street that rings as true as ever to this day, it goes something like: Bulls make money, Bears make money, but Pigs get slaughtered. What it means is that pigs are greedy (they eat a lot) and if you’re greedy in the market, it’s just a matter of time before you get slaughtered AKA lose all your money to the market.

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Once you become possessed by greed, you are doomed to lose your trading account. Trading should not be about making a lot of money. Instead, it should be about winning, about becoming the best at trading that you can and then, as a side-effect, you will make money. When people start putting the money first, they’re being greedy, and they lose. You must do the proper things to win at trading, and this typically means you make money very slowly at least in the beginning. Thus, if you’re greedy and wanting to make money fast, you’re not going to be executing the proper trading mechanics that lead to long-term success.

Trading demon #7 – Ignorance

The last trading demon we will discuss is ignorance. Obviously, this one is easy to diagnose because if you’re ignorant about trading you aren’t going to make very much money.

However, where I think many traders find trouble is that they often don’t even realize they are ignorant regarding trading. They are studying the wrong things, like indicator-based trading or they are obsessed with day trading, both of which can bog you down and cause you to study and study for years only to end up with nothing to show for it. There is a much simpler way, a more intelligent way.

Knowing that you cannot control the market and that you can only control yourself, is a big first step in not being an ignorant trader anymore. Once you start to focus on controlling yourself and not the market, you will let go of things like indicators and day trading, because ultimately such trading devices are used by traders to try and get more ‘control’ on the market, whether that is possible (it’s not). But, these things bring about the illusion of control, they make traders FEEL as if they are controlling the market more. Looking at small time frames like a day-trader or plastering 5 indicators on your charts will bring you the feeling of control. But all you’re doing is over-complicating the technical analysis process, which is a very ignorant thing to do.


The genesis of today’s lesson was that I have had all these ‘demons’ at some point in my trading career and I’ve figured out how to move past them, and I want to help you do the same. I’ve walked the path that you are on right now and I’ve experienced the bad habits and the obsessive behaviour that you may be experiencing in the market and life in general. It’s my hope that this lesson and all the other lessons on my blog and in my trading courses can help you achieve the same positive turn-around in your trading and in your life as well.

What did you think of this lesson?Please share it with us in the comments below!

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How to Exorcise Your Trading Demons » Learn To Trade The Market (5)

About Nial Fuller

Nial Fuller is a Professional Trader, Investor & Author who is considered ‘The Authority’ on Price Action Trading. His blog is read by over 200,000+ followers and he has taught 25,000+ students since 2008. In 2016, Nial won the Million Dollar Trader Competition.Checkout Nial's Professional Trading Course here.

Allow me to delve into the intricacies of the concepts presented in the article, drawing from my extensive knowledge and expertise in trading psychology:

  1. Hesitation and Second-guessing:

    • The author highlights the detrimental impact of hesitation on trading decisions.
    • Emphasizes the importance of sticking to a trading strategy and avoiding over-analysis.
    • Advises against spending excessive time searching for online information that aligns with preconceived notions.
  2. Arrogance, co*ckiness, and Over-confidence:

    • Identifies the dangers of over-confidence after a series of winning trades.
    • References Charles Darwin's quote to highlight the correlation between ignorance and over-confidence.
    • Encourages traders to seek education and stay humble to avoid account blowouts.
  3. Fear:

    • Discusses common fears in trading, such as fear of losing money or fear of trades not being winners.
    • Stresses the importance of understanding the random distribution of wins and losses.
    • Recommends reducing risk per trade to eliminate fear, emphasizing the role of proper risk management.
  4. Regret:

    • Describes regret as a potential source of havoc in trading accounts.
    • Advocates for a well-thought-out trading plan and disciplined execution to prevent regret.
    • Highlights the need for traders to have 'ice in their veins' and not let previous trades influence future decisions.
  5. Revenge:

    • Connects regret to revenge, emphasizing the dangerous cycle that can lead to account depletion.
    • Advises against deviating from the trading plan and risking too much, which can trigger revenge trades.
  6. Hope and Greed:

    • Discusses the relationship between hope and greed in trading.
    • Warns against moving profit targets based on hope, citing the old Wall Street saying about the dangers of greed.
    • Emphasizes that trading should be about winning and mastering the craft rather than making fast money.
  7. Ignorance:

    • Identifies ignorance as a significant challenge for traders, particularly when focusing on the wrong aspects of trading.
    • Encourages a shift towards self-control and away from trying to control the market through indicators and day trading.

In conclusion, the article provides a comprehensive exploration of various psychological challenges (referred to as trading 'demons') faced by traders. It not only highlights these challenges but also offers practical advice and solutions to overcome them, drawing from the author's personal experiences in the trading world.

How to Exorcise Your Trading Demons » Learn To Trade The Market (2024)
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