Impulsive Trading: How to Stop Doing It // Ep. 14

In This Episode

• How a personality test can help you identify your strengths and weaknesses
• Why the “arrows” technique can stop you from taking impulsive trades
• How to trade if you have ADD

Resources Mentioned

• The Big 5 personality test
• Subliminal tracks for impulsiveness
• Subliminal – Money Management
• Hypnosis tracks for impulsiveness

How to Stop Impulsive Trading

Impulsive trading is a common issue in traders who are learning to trade. Some traders may test a strategy and even do statistical analysis on the testing results.

But when it comes time to actually trade, they take trading signals from YouTube videos, books and other sources that are not their trading strategy.

Why do some traders do this?

In this episode, we dig into this phenomena and show you ways to overcome this behavior.

Read the Transcript:

Walter: Hi, Hugh. We have a question from a trader. A good friend in Ireland but he's from South Africa. A really cool guy. He has this issue of, he will back test his strategy; get his numbers; get everything set up; everything's right; everything looks good but then what happens is during the week, he'll start taking trades that are not part of his strategy.

He will see signals from other traders or another system that looks really good that he hasn't tested or whatever, and he'll take the trade. So the question is, what do I do to get around this? This is an issue. It's really impulsive trading. It is what it is. So I have some thoughts on that. Do you want me to start?

Hugh: Sure, go for it.

Walter: There are a couple of things you can do. This impulsivity, if you take a personality test you would probably see that you're high on impulsiveness. A good personality is like the ocean which is the big five.

If you just Google, I'll put a link in the show notes so you guys can take it but if you're high on impulsiveness then that would be the kind of thing that would come up.

This is tricky because these are the sorts of people that don't make it as bank traders. They get fired. They get fired when they make the mistake twice. They're done. So what I said to him, “You need a trading accountability partner. You need someone to talk to every month, every week on the weekend or whatever. Just go over your trades and let him go through everything. See why you took this” and all that.

Also I like to use the, you know you only have a certain number of arrows to shoot. This is really good, actually scalpers use this quite well. This rule where they say like, actually I was talking to a trader this week.

He has a five-minute scalping system and he only gets two. What he is basically trying to make is, if he can make one and a half percent a day then that is his goal. He only gets two arrows a day and that's kind of what I recommended to my friend.

I said, “Look, just give yourself a certain number of arrows. Whether it's two arrows, three arrows or whatever a day and after you shoot those three arrows, you have to come back the next day.

Your trading accountability partner on the weekend will say, “Okay, how many did you do on Monday, Tuesday and Wednesday? Which system was this? Is it a system you actually tested? Or, was it some you know yahoo on the internet saying that the Euro is going to go up?” or whatever. Do you know what I mean? That sort of thing.

Also I suggested there are — I can put a link in for people interested in the show notes. For people interested in the subliminals. There are — subliminals for impulsiveness. There's hypnosis tracks for that sort of thing.

So if you're accountable to somebody, if you use the arrow technique, if you're working on your subconscious, those are the three things that I would recommend to do. If this is the kind of situation you find yourself in.

Hugh: Hey there! I hope you find this episode useful. I just want to let you know that Walter and I give away something valuable every month that helps traders improve their skills. You can enter to win by simply leaving an iTunes review and leaving a comment on our YouTube videos.

At the end of each month, we'll look at the comments and reviews from the month and we'll pick a winner at random. Each comment and each review counts for one entry during the month that it's pitted.

So, if you're interested in that, be sure to enter after this podcast is over. Alright, back to the episode.

Hugh: Okay, cool. I personally have a slightly different opinion on that one. I think the arrow technique is good. I only allow myself two entries per trading idea. So that really limits the losses also but I think maybe one thing to consider. Maybe you feel too restricted by a system like if you should be more of a discretionary trader, who just reads price action as opposed to somebody who has a set system and only trades that system you know that kind of goes against some logic.

Some things that I also teach but I think there is that personality type that is more of the discretionary trader and wants to have more variety. The system might be like restricting them. I think that, that's something that can be back tested. Something that can be practiced every day but it's less about having a set system.

I think that's maybe something to consider also if you find yourself straying away from the system that you're supposed to be trading. I've read a lot about ADD personalities and how sometimes these types of people have to do a project, put it down.

Do the next project and then come back to the other project. It's just the variety. They need that variety so that could be one of the things to explore if you find yourself not being able to follow a system.

Walter: Yes, I definitely agree. Another thing you might look at, that occurred to me while you were explaining. I think you know some people will say, “Hey Walter, why don't you just like what you said just read price action? Why don't you just trade price action and my question for you is have you tested it?”

So what I would say is, what if you take all of your strategies that are tried and true and back tested and all that, and you're trading those on your live account? At the same time in parallel, you have a demo account?

What you're doing is you're taking all of these sort of reading the market or gut feel sort of thing and see. Have a race who wins every quarter, every six months, every nine months whatever it is.

See like where do you fall out in terms of the demo account versus the live account. See if it's actually better because I feel like you know we do run into hindsight bias with this sort of thing. We kind of trick ourselves into saying, “Oh, this system's amazing” but it's easy to skip over when it doesn't work.

So I definitely agree. I think it's definitely another way to do it. If you have that data though and you can go, “Look, I've got this demo account. I've actually been just fully trading discretionary price action. Reads on this one and it's actually pretty good” that might give you a reason to consider moving a small account into that method or something like that.

Hugh: For sure. All right, thanks.

Walter: Thanks.

Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.

Enter the Monthly Contest

We give away a trading prize every month, so be sure to enter to win.

You can win by doing one or more of the following:

• Leave a comment on YouTube
• Leave a review on iTunes

Each action counts for one entry in the month that it was posted. We will pick a winner at random from the entries that month.

The giveaways can include books, coaching sessions, trading tools, or surprise gifts.

It will usually be something that will help you improve your trading psychology. 

Listen to the Audio Version

Click the play button below to hear the audio-only version. You can also download the mp3 file below.

Podcast: Play in new window | Download

How to Get New Episodes of The Think Profit Podcast

You can get notified of new episodes of the podcast by subscribing to our email list, or subscribing via any of the major podcast platforms that can be found here.

If you enjoyed this episode, a 5-star review on your favorite podcast platform is always greatly appreciated!

Thanks for listening and we hope that your trading is going well!