A Trader's Cognitive Theory & Frustration

insight psychology Jul 02, 2016

Cognitive theory implies that we do no react to events but react to the thinking of those events. For example, when a trader is overcome with frustration, it is not their losses, but their thinking of those losses that generate knee jerk reactions and result in self-criticism and overtrading.

It is a common human reaction to to feel that losing is a sign of weakness; that losing makes you a loser. Therefore, as a trader this may typically lead to us holding onto losing positions, changing our trading strategy and rules or overtrading to make our money back. Ironically, it is these reactions that increase the trader's likelihood of financial losses.

A cognitive approach to overcoming this is to find ways of thinking that make losses non-threatening. One way to do this is to embrace losses and learn from them. By analysing our losses we can turn them into an opportunity to learn. This learning, growing and development approach helps with our self-improvement.

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