How to exercise restraint so you don't get wrecked

The Truth About Trading: Embrace Restraint or Get Wrecked

When I first started trading, I was learning with some traders who were hammering out 7-10 trades a day. They seemed like gods to me. Hitting it big every other trade while I just kept losing. The more I tried to keep up, the more I lost. One day, I traded so much that I racked up over $4000 in drawdowns. Emotions were running high, and it felt like I was on a rollercoaster from hell.

Trading felt exhilarating when I won, but each loss was a gut punch. The highs were a rush, but the lows were like a pit of despair. If you're nodding along, then you know what I'm talking about. Here's what I learned the hard way: If you take fewer trades, you will make more money. Why? Because you'll develop the one fundamental trait that every successful trader needs – restraint.

Most successful traders will tell you that psychology is the key to consistency. It's not about the number of trades you make; it's about making the right ones. When you take fewer trades, you're less likely to lose restraint, and your chances of making dumb decisions decrease. Every loss chips away at your ability to exercise proper restraint, leading to impulsive, FOMO-driven behavior. You become a trigger-happy maniac, entering positions without a second thought. No analysis, just pure desperation to make back what you lost.

The Slippery Slope of FOMO

When FOMO hits, your trading plan flies out the window. You think, "This time is different," but spoiler alert: it's not. Consistency comes from sticking to a plan, not from reacting to every market twitch like a junkie needing a fix. When you start overtrading, your risk management takes a nosedive. You enter trades without stop losses, thinking you can beat the market by sheer willpower. I see it all the time – people jumping into markets without a stop loss, thinking they're invincible. Guess what happens next? You lose. Big time.

Overtrading puts you on an emotional rollercoaster. One moment you're on top of the world, the next you're in the depths of despair. This yo-yo of emotions kills your clarity. To trade consistently, you need to be calm and disciplined. FOMO makes you anything but.

The Brain's Dirty Little Secrets

Our brains are wired to crave social inclusion and avoid missing out on rewarding experiences. That fear triggers the same parts of the brain associated with physical pain. Missing out on a trade feels as bad as a kick to the nuts. Evolution made sense of this when being left out meant death by lions. Now, it just means you're screwing up trades.

Your amygdala – the part of your brain responsible for fear – goes haywire when you think you’re missing out. It hijacks your logical thinking, leading to impulsive decisions. Cognitive biases like confirmation bias make it worse because you start seeing only what confirms your fears and ignoring everything else, leading to terrible trades.

Developing Proper Restraint

Developing restraint is crucial. It’s so simple it feels stupid to write it down, but here goes:

• When you feel impulsive, wait.

• When you're pissed after losing a trade, take an hour away from your desk.

• On a high after a win? Great, walk away and come back tomorrow.

• Missed out on a trade? Let it go. Just wait for the next setup.

• Set a Daily Trade Limit: Specify a maximum number of trades per day. Once you hit that limit, you're done for the day.

• Use a Trading Journal: Document your trades, emotions, and thought processes to recognize patterns and triggers.

• Implement Strict Risk Management Rules: Set stop losses and take profits before entering a trade.

Be patient. Let the market create the setups for you. You can’t force trades. If you lose, you can't make the market give you trades faster. So, what do you do? You wait.

A Few Metaphorical Examples

Think of trading like fishing. If you cast your line 100 times in a spot where there's no fish, you'll come up empty every time. But if you take the time to find the right spot, even if it means waiting longer between casts, your chances of catching a big one increase dramatically.

Or imagine you're at a buffet. Sure, you can pile your plate high with every dish, but you'll end up with a mess of flavors that don't mix well. Instead, take your time to choose the best dishes that you know you'll enjoy. Quality over quantity.

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Happy trading, and remember: less is more.