How the EGO destroys binary options traders.
Some time ago, I came across a fascinating article on the power of self-control published by the American Psychological Association (APA). A social psychologist named Roy F. Baumeister describes an intriguing theory based on his research in the article. He believes that
willpower can be a limited resource that is regularly depleted
. I’ve thought about how this theory can be applied to everyday life, and what happens to me, and it can also be quite applicable to binary options trading.
Have you ever walked downhill?
There is an unfortunate thing that happens to traders. Sometimes it is called “going downhill”. This term is not used universally, and is actually taken from the gambling industry (and before that, it was used in the game of pinball), but it is one of the terms to describe what happens to traders who lose control.
A sort of hike on the slope creeps up unnoticed. One minute you’re trading, you’re feeling great, and the next you’re noticing that you’re not quite as cool as usual. There may or may not be an objective “reason” for what happened. Maybe you’ve lost more trades than usual this week, or maybe you’re not in the mood. Maybe you’re just feeling less confident than usual.
In any case, the next thing that happens to you is a loss of control. Your thoughts spin fast, your emotions boil, and you make one terrible decision after another.
Chasing losses is one of the most common examples of going downhill in trading. You’re losing more trades than you expected, or you’re losing one really big trade and you’re trying in desperation to get it all back. It’s not the only type of tilt, or the only reason to do it. Traders sometimes behave this way because they are angry and want revenge in the market. Sometimes they do it because they are bored and frustrated. Sometimes they even do it because they are too confident and believe that they can only win!
No matter why you start behaving this way, and no matter what emotions are involved, these behaviors always end badly. This is how traders lose money and sometimes their careers.
Earlier, I gave some of the following psychological reasons why traders lose money and chances for a career as a trader:
- Traders sometimes have unrealistic expectations. And sometimes it’s very hard to understand if expectations aren’t met.
- Losing money is always painful. When this happens, you try to compensate for it with new victories. You feel like you could just win back some money, you could get out of that streak of bad luck and come back to feeling confident. Desperate for reassurances, you end up pouring even more money down into a black hole of self-doubt and fear.
- Traders who go downhill often feel that they are completely out of control. They can feel this way in trading, and in life in general, sometimes here and there. More on this below.
This phenomenon is provoked by impulsive behavior.
So, the observation that we made about the slope is always an uncontrollable phenomenon. Traders who have already been influenced may or may not be aware of it, but both are not in control. Their behavior is characterized by impulsivity.
Here’s how Google defines impulsivity:
Obsessive: Follows from a desire that cannot be resisted, especially if it goes against conscious desires.
Sometimes traders really want to stop, but just wanting to stop is not enough. Even though they act against their will, they just keep doing what they do. The people around them (and often the traders themselves) wonder why they are on such a suicidal path, and why they can’t “just stop.” This is especially scary for the trader, who may feel that he is completely unable to control his own mind. A trader who goes downhill may feel that he has no willpower at all.
Determination of willpower
It’s pretty hard to come up with a good definition of willpower to distinguish it from just “will.”
Will is defined as:
- “The ability of a person to make a decision and initiate an action.”
- “Intentional or fixed desire or intention.”
- The Psychology of Binary Options Trading
- Willpower is defined as follows:
- “The ability by which a person makes a decision and initiates an action.”
- “Conscious self-management with effort.”
- “The ability to overcome unwanted impulses.”
As you can see, these definitions overlap. But for the sake of fairness, let’s define “will” as a fixed intention, such as the desire to make a profit, and “willpower” as an opportunity to overcome impulsive desires that can cost you money (the compulsion to go downhill). The will, in other words, is something permanent. You don’t want to just stop, want to make a profit, and be happy. Willpower, on the other hand, is something that can come and go. The choices you make are not always controlled by your willpower or supported by your will. Sometimes they are under the control of your impulses and actually counteract your desires.
What depletes willpower?
Why do downhill traders lose all ability to control themselves? Here you can apply the reasons already mentioned, but it also seems to me that in the case of many traders, they really lack willpower, and with it a sense of themselves.
As I mentioned at the beginning of the article, I base this theory on the work of psychologist Roy F. Baumeister. Baumeister conducted a research study in which he gave two groups of students puzzles from the field of complex geometry. Before giving them riddles, he offered them freshly baked chocolate chip cookies. He said one group of students could eat cookies and then work on puzzles. To another group, he suggested trying to resist the temptation to eat cookies and eat radishes instead. Cookies were available, so it was their decision, not his, whether to eat them or not to eat them (an act of will). But these students were allowed to eat radishes instead of cookies.
How did both groups complete the geometry puzzles? “Common sense” can tell us that a group that didn’t eat cookies worked better because they were already using willpower, and therefore had to work in this mode. But the group that ate cookies should have worked worse, since they did not use willpower.
If that’s what you assumed, you’re wrong. Yes, that would be wrong. The group that ate the cookies could concentrate on the puzzle for an average of 20 minutes. A group of students who resisted the urge to eat cookies were able to concentrate on the puzzle for an average of only 8 minutes.
That is, students who resisted the urge to eat cookies actually burned a limited reserve of willpower in order to do so, and by the time they got to the puzzles, they simply no longer had the reserve of willpower to work on them. Students who ate cookies and essentially didn’t expend willpower on complex decision-making had enough willpower to work on the puzzle.
If you think about it, you can find examples of it from everyday life.
For example:
- A person who rigidly adheres to a restrictive diet for a few weeks, and then one day breaks down and eats everything. This is exactly what prevents dieters from sticking to a long-term plan.
- A frustrated leader who comes home after a long day and difficult decisions loses control and pours out emotions on his spouse, instead of holding back.
- A student who studied day and night before the exam completes it and goes on a spree. This will cost him a good grade in the next exam.
All these examples look negative from a superficial point of view. No one wants to go on a spree that will cost him the transition to the next course. No one wants to fail in their diet and weight loss. No one wants to get angry at their spouse.
But you can see how, in a sense, their minds are trying to “reset” themselves, giving themselves a forced break from everything that has to do with willpower. They have exhausted it and all they have is impulsive behavior. And this, of course, leads to defeat and failure.
Of course, you need to look for clever ways to eliminate the “reset” before you are left with nothing but your impulses. If you can do this on a regular basis little by little, then you will never fully exhaust your willpower. You will be able to work to the maximum. In the above situations, the following tips would work well:
- Those who are on a diet should opt for a more moderate diet and afford a “Deceptive Food” once a week.
- The executive branch should look for ways to delegate some tasks and decisions, and another avenue for catharsis should be explored other than yelling at the wife.
- The student has to study less and rest more, sometimes the minimum job for B pays off sufficiently. It is better to get a B on both exams than an A on one and a D or F on the other.
What is ego depletion?
“Ego depletion” is simply what Baumeister and his colleagues chose to call the process of willpower depletion. Initially, they were going to go with the term “deregulation depletion,” but they found that willpower depletion occurs not only as a result of acts of self-regulation, but also from decision-making. As he states that “We wanted to find a broader term that would include the concept of exhaustion of certain basic aspects of personality.”
This is a fascinating theory, as it suggests that when we focus long enough on difficult and important tasks, ironically, we are exchanging something that is essential to maintaining the structural integrity of our identity. When your sense of self is corroded, not only do you lose the ability to make smart decisions, but you also lose perspective. You may lose sight of what you want and what is important to you. Not surprisingly, when we go downhill, we feel that the situation is completely out of control. How can you control when the main aspect of your feeling is exhausted? You are temporarily disconnected from you.
As exhaustion it can cause a trader to slope
According to Baumeister, research shows that most people spend an average of three to four hours each day resisting their impulses and trying to stay on target. That is, the average person.
The average person is not a trader. You’ve chosen a path as a binary options trader that is actually much more stressful and intense than what the average person has to deal with. This is especially true since, in all likelihood, you also work during the day. So you have all the tension that the average person has, plus the added stress of trading.
If there’s one word that’s used over and over again in articles about the psychology of trading, it’s “discipline.” The most successful traders cite this (along with adaptability) as the most important trait that any trader can possess.
Every day, as a trader you use discipline (we can also call it simply willpower) in the following ways:
- To learn and learn at every opportunity. In a way, as a trader, you’re kind of going to college all the time.
- To perform ongoing tests and test trading methods on demo accounts. Often, training, testing, supplementing and implementing systems requires a significant focus on intensive and complex technical concepts.
Self-control in trading. There should never be a moment that leads away from trading, and it will appear as soon as you relax your self-control and make a difficult decision. Even if you have a trading method and it clearly tells you what to do, you can still do something else. Even adhering to this method and its rules requires willpower. Sometimes this means that when you place a bet, you are afraid to take the plunge. In other cases, it means giving up those trades in which you would like to participate, then you know that you should avoid them. This may mean the cessation of trading if you have a desire to withdraw from trading at the initial stage.
Here are just a few examples. Undoubtedly, you can think of a lot more. It is not surprising that traders sometimes do not withstand the pressure and go downhill. If the average person has trouble dieting, or not taking the strain on their spouse, it’s no wonder that binary options traders sometimes can’t resist making bad decisions.
Often, when you are trading, you are already in a partially ego-impoverished state. You spent all this energy in a day of your work, and now you have very little left for trading.
And it doesn’t help that traders try to control themselves, often overdoing it. For them, “discipline” means trading for six hours every day after returning home after a nine-hour day at work. This is a sure recipe in order to completely rid yourself of self-control. It can happen quickly or slowly, but it probably happens eventually. It may very well be that the moment when stress turns into psychological burnout will be the moment when ego exhaustion will gain full force.
Another comment Baumeister made regarding what is important to traders is exactly how exhaustion feels it. Another study was conducted by Kathleen Vos, a doctor, and she found that emotions and impulses are sharper in those with depleted egos. Baumeister compared this to increasing the volume of the sound of life.
So, how exactly does downhill descent feel?
What can you do about it?
Now that you have a better understanding of why sometimes you can get out of control and lose money, it’s time to think about what you can do to prevent it? Here are some recommendations:
- Discipline should not be confused with overwork! Working fifteen hours a day in trading, plus your working day, will drain your willpower and your ego faster than anything. Get away from this crazy schedule. You may feel like you’re coping, but you’re not. You take care of yourself and protect your most important resource. Work three hours a day in trading instead of six if you need to. Eventually, you’ll probably make more informed decisions (and sleep more).
- Take regular breaks. These include short breaks during the day, as well as occasional vacations. When you do them, don’t fill your breaks with other types of work. In fact, do something completely “meaningless”. In fact, such breaks are far from meaningless.
- Over and over again, break your rules. I’m not talking about your trading rules, just the strict rules that govern your life in general. If you work every Saturday, take a day off on Saturday. If you are on a strict diet, order the richest high-calorie dessert in a restaurant for one night. Don’t make breaking any particular rule a habit, but give yourself some leeway from time to time.
- Control your blood glucose levels. Blood glucose is like fuel for your brain, and ego-draining tasks are actually running out of blood glucose too. This can turn into a vicious fast cycle. Baumeister suggests sipping lemonade to maintain good blood glucose levels. It can be seen how even just taking a break can also contribute to an increase in blood glucose levels.
It’s ironic, but ego depletion most often occurs in those who try the most to achieve success. The harder you struggle to become a binary options trader, working endless hours and making difficult decisions, the more likely you are to throw yourself into a draining cycle. That’s why smart, dedicated traders often manage to literally empty their accounts despite their best efforts.
The bottom line is that you are not a trading robot. You are a person who always strives to walk the narrow line between impulses and true will, and this requires willpower, which, although it is a limited resource, can and must be replenished. Oddly enough, replenishing your willpower often makes you do something impulsive and undisciplined.
So again and again, take a break. Take a day off, work fewer hours if you need to, and spend more time on things that are fun for the simple reason that you enjoy them. Break the rules carefully and carefully, this way you optimize willpower and performance. A trader is not one who manages to work 15 hours a day. Such a trader is likely to go downhill and blow away all his money in a moment. The trader who is most likely to take place is the one who works a moderate number of hours and leads a balanced life. Discipline is not about never succumbing to impulses, but about being able to restrain them.
Tagged with: Binary Options Academy • The Psychology of Binary Options Trading
