I had fun specifically on July 17, 2022, which is the last day of the Jakarta Fair 2022 and it made me forget to write new knowledge on this blog, and if I continue to do other fun things that can hinder me from writing new knowledge on this blog, then, it would create a new habit for me which eventually left this blog in the dust. That is why in this post, I want to show you how powerful habits can change your life and how it affects your trading results.
Habits Definition
As usual, whenever we want to dig deeper into what we want to know, first thing first we have to know the definition of what we want to know. Okay, after I surfed the internet, I found that Britannica defines a habit from the paradigm of psychology in which a habit is where you have a repeated behavior and it is reinforced through the repetition of your daily actions previously.
Aside from that, I got another habit definition from Cambridge Dictionary which explained that a habit is something or action that you regularly repeat and it does not require you to know that you are doing it. From those two definitions, we can conclude that a habit is where you do things that do not require your full consciousness and it has seeped into your subconscious mind by thinking of what you regularly do is normal.
The Importance Of Habits In Life
Now we know what a habit is and I say that habits are very important to determine the direction of your life as there is a saying that good habits will lead you to a good life and bad habits on the other side can slowly destroy your life. For example, there are two people, just call them person A and B. Person A has a habit to run every morning and he knows the benefit of that habit can lead him to a healthy life which can also increase his stamina. Years later person A's body is still fit and in a good shape.
Person B, on the other hand, has the opposite habit of what person A has in which he likes to eat fast food and is super lazy when it comes to exercising his body such as running every morning like person A regularly does. Person B does not realize that if he continues to do his habits every day it can slowly build "trash" in his body. Years later, person B regrets what he has kept as habits because his body now is not in a good shape anymore.
The Importance Of Habits In Trading
If we use the analogy of person A and B, in trading, there is a habit, especially for those who first begin their trading journey that is called psychological pressure and this is what separates the pros and the beginners. Just say person A has a habit to calm himself first each time he hits his stop loss and take a deep breath before he decides what to do next by reanalyzing what went wrong and just taking a trade where he is sure a high probability trade. Years later, person A realizes that trading requires patience and is certainly not a get-rich-quick scheme.
However, person B has a habit to do impulse trades each time he lost and he does not want to admit that he lost which eventually makes his gambling mindset turns on by opening a bigger position led by emotions that scream "I am going to win this time! If not I can deposit again until I get what I deserve!". Years later, person B has become addicted to gambling and now he does not have any penny even for buying his food because whenever he has money he always uses it all at once to "donate" to the market.
This is why your habits are very important that can lead your trades either to good trades or bad trades. Even Alexander Elder in his book mentioned that "the key to winning was inside my head and not inside a computer" (Elder, 1993, p. 2). Elder (1993, p. 3) also wrote that many traders say they want to be successful but keep making impulsive trades for the sake of the short-term thrills of gambling in the markets. He then continued to relay that "lying to others is bad enough, but lying to yourself is hopeless" (Elder, 1993, p. 3). I perceive that he is trying to convey the importance of your habits and your psychological conditions (of how you behave when you meet with psychological pressure) as it can determine your trading results and not a super magic indicator that has been installed in your computer. I also see that even if you know how to trade properly it will be useless if you do not make it a habit.
Conclusion
From the paradigm of psychology, a habit is where you have a repeated behavior and it is reinforced through the repetition of your daily actions previously and it does not require you to know that you are doing it. Habits can lead your trades to good trades or bad trades. Good habits in trade can make your performance goes up, such as calming yourself down before you decide what to do when you hit stop loss. On the other hand, bad habits such as chasing short-term thrills of gambling can make your performance poor and also possibly make you poor in the future.
Written by Andre I.
References
Britannica. habit. Retrieved from Britannica (Accessed July 24, 2022): https://www.britannica.com/topic/habit-behaviour
Cambridge Dictionary. habit. Retrieved from Cambridge Dictionary (Accessed July 24, 2022): https://dictionary.cambridge.org/dictionary/english/habit
Elder, Alexander. 1993. Trading for a Living: Psychology, Trading Tactics, Money Management. New York: John Wiley & Sons, Inc.