Sunday, April 25, 2010

Safeguarding Techniques

I am starting to like this guy just as much as Dr. Steenbarger. This is convenient since Dr. Steenbarger just announced that he is winding down his blog after 3 years or so and 3700 ish post along with three books, he is going to go work for some proprietary trading firm and will not be able to post as much.


Sent to you by Dominic via Google Reader:


via Psychtrader by Darren on 1/18/10

In Adlerian psychology there are what's known as safeguarding behaviors and they have a place in trading as well. Basically, we as humans want to protect ourselves from three threats to the self.

  1. Physical harm - we might get sick, die, etc.
  2. Social threat - we might not look good in the eyes of others.
  3. Loss of self-esteem - we might not look good in our own eyes.

What follows are the six primary safeguarding techniques that we all use to protect ourselves from the threats listed above.


Developing symptoms provides an opportunity to avoid an instance where one might feel threatened. As an example, if I were to get a headache on Sunday night knowing that the markets were open the next day and I've been short during a 40 point bull run.

Nobody enters a trade hoping to lose money. Rather, we all trade to win and that's what successful traders strive for. If headaches, fatigue, day-dreaming or other symptoms manifest themselves regularly then perhaps a little self-analysis is in need.


We are typically aware of the excuses we use and everyone has a favorite. Often times as traders we fall prey to this "if only" game and it can be debilitating. As an example, I might find myself saying "if only the FOMC statement wasn't so hawkish I wouldn't have lost so much money."

Excuses are most likely done consciously whereas symptoms may be more from the unconsciousness. Therefore, the key is to recognize excuses that you might be throwing out there that are hindering your ability to succeed in trading. Take charge of your own actions and be accountable for each trading decision you make.


There are several ways that aggression can manifest itself in life and it's typically a secondary emotion. Depreciation is where we might put others down to make ourselves feel better. Accusations are a common form of aggression. Self-accusation and guilt are a few other examples. The point is that aggression is a no win situation in which objectivity is often tossed out the window. Trading on emotions is one of the worst things you can do.

In poker, when a bad beat has occurred, the player has the tendency to become aggressive and seek revenge. This is often referred to as playing on tilt and the same thing occurs in trading. A certain stock took us for a few dollars and we might cuss at the monitor or throw the mouse. Next thing you know, we're back in their looking for a new entry and probably armed with twice the trade size that should be used.

Aggression is common and it's not a bad thing to be aggressive. In fact, aggression is needed to be successful in trading. The key is that you don't want it to become debilitating and causing you to trade on tilt. Focus on aggression more as fuel rather than a force as you need to be in control and work the throttle.

Distance Seeking

  • Relating to movement, we can find ourselves doing some pretty bizarre things when we step back and take a look. Here are a few "styles" of distance seeking that we all might have seen once or twice.
  • Backward movement-actually moving away from the challenge. The inability to step off the curb and pull the trigger on a trade.
  • Standing still-entails buying time. As an example we might not have all 483 indicators lined up correctly to place the trade.
  • Hesitation-failure to pull the trigger again, but more from a procrastination standpoint. Maybe the account hasn't been funded yet. OK, but ask yourself why it hasn't been funded and perhaps you can get at the root of the need for distance.
  • Creating obstacles-examples of this distance seeking tactic would be waiting for outside variables to hinder your trading. I need to get that 42 inch monitor so I can see the charts better.


In my tenure as a therapist I dealt with clients who had debilitating tendencies that were often related to anxiety. What's a better way to safeguard self-esteem than to become so afraid of life, people, etc. that you can't even function. By taking the time with my clients to find out what it was they were trying to avoid they were able to manage their anxiety without meds.

As a trader we can become so anxious about losing money or having others know about our losses, etc. that we choose not to trade at all or trade poorly. One of the basic tenets of Adlerian psychology is that we all strive for perfection or superiority. As traders we sometimes put undue pressure on ourselves by saying things like " I need to make $800 per day trading to meet my outflow." What happens when that "goal" isn't met? The result is often times manifested in performance anxiety and once again objectivity has left and larger than normal trade sizes start to appear. All the while striving for that $800 daily goal and the end result is anxiety.

Exclusion Tendency

In order to avoid future events I look to narrow my approach to trading so I focus on fewer strategies or setups and become extremely rigid. The end result is that I may only make 1-2 trades a month and that puts a lot of undue pressure on those few trades to be successful. The rigid, inflexible trader is easily broken as they are unable to adapt to a changing market environment. Many of the above mentioned safeguarding tendencies will manifest themselves and it can be painful both to the account and the ego.

The inability to adapt to such changes finds traders trading what they feel rather than what they see. If I'm holding up 3 fingers and asking how many you see...the answer should be 3 and not you asking me to hold up 4 because you feel as though that's what I should hold up.


There's nothing wrong with not wanting to look like a fool in front of others or not ever wanting to lose on a trade although the latter is highly unlikely. What is wrong is if you perform some of these safeguarding behaviors and they themselves hinder your ability to trade objectively. Often times traders are unaware of all the baggage they bring to the market on a daily basis. Unfortunately, most have to take a sizable hit and reach for the proverbial "rock bottom" before they figure out that something has to change.

One of the most underused and often overlooked tools that any trader can use is the trading journal. I suggest that if you don't have one then get one now. If you do have one and don't use it, kick yourself in the pants and get busy. Learn, trade, grow, share!


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