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May 25, 2021, 11:57 AM GMT

The Definition of Insanity, Or Why People Deceive Themselves

The Definition of Insanity, Or Why People Deceive Themselves

There is an old adage postulating that "the definition of insanity is doing the same thing repeatedly, expecting different results". People often revert back to this old wisdom to criticise traders who are consistently in the red because of their repeated mistakes. But what if this cliché is not appropriate in trading?

What if these constant misfits are not expecting "different results", at any rate, not consciously so? And what if there is some perverse satisfaction people feel at a deeper level when they see their positions go down the drain? Could it be that there is some deeper psychological explanation for this head-scratching conundrum?

Making easy vs difficult choices

Life is defined by the obstacles each of us has to overcome daily, and trading is no different. Whether it be minimum capital to deal with, a limited amount of time that can be dedicated to examining charts, a high degree of frustration with the unpredictable nature of the market, or something else, each trader has to grapple with some sort of limitations that stand in his way to success.

There are obviously rights ways to deal with adversity and scarcity, just like there are wrong ways to go at it. Evidently, the initial motivation of each novice trader is to succeed on the market, but consistently poor performance could skew the perceptions of even the most optimistic of traders.

When you have incurred several losing trades in a row, the logical thing to do is to give yourself a little break away from the market, rethink your approach, and determine whether you need to recalibrate your strategy. However, there is a sizable portion of traders who, despite doing these things, still fail to secure the desired results.

It is at this point that it becomes reasonable to ask yourself: "is it even prudent for me to continue on this path of constant frustration and loss?" But again, emotional decision-making could be quite a major impediment to critical thought, which is why so many of these unfortunate traders chose to prolong their misery.

Wanting to fail

One possible explanation of this odd behaviour could be a particular psychological condition. When frustrated, many people feel the subconscious need to fail in order to expose what they perceive as injustices in the world. It is easier to accept that the market is a rigged place where no one can succeed consistently, rather than putting in the work and making some profound changes to your trading style.

The "it is all a casino" assumption is relatively easy and tempting to accept because it alleviates you from the stress of having to take responsibility for your actions. This is a pain-relief of sorts because traders no longer feel the need to trouble themselves with such burdens. It is pretty alluring to one's psyche to believe that the core reason for all frustration lies somewhere beyond the realm of one's personal responsibility.

Doing the same mistakes over and over again would never change your trading performance

By making such assumptions, traders' main focus is no longer placed on making profits. Rather, their main goal from there on out is to prove a point - that trading is an impossible endeavour and that they need to expose the deeply-rooted schemes of a rigged system. But this raises an even more compelling question. If one believes that the market is indeed akin to a massive casino, why continue gambling recklessly?

The answer is quite a straightforward one because even the decision to walk out of a casino would mean admitting a mistake. And accepting that you have been fooled is hard for a fragile ego. This is why so many traders prefer the seemingly easier way out. They extend their pain and suffering indefinitely, hoping to lift the veil of this deep-rooted conspiracy.

But the truth is that there is no such conspiracy, there are no Illuminati pulling strings from behind. Traders are not trying to prove anything to the world, not really. What they are doing without realising it is that they are trying to deceive themselves. That is when they are not ready to face the truth.

What is the solution then?

When you catch yourself losing, take responsibility for your own actions. Admit to yourself that perhaps your strategy is indeed lacking and inefficient. It is not a shameful thing to admit to yourself that you need to put in more work to polish your strategy. You can do one of two things.

You can either get back to the drawing board and work hard to improve your trading strategy or you could decide to leave the market. Both solutions are better than choosing to deceive yourself indefinitely, thereby hurting your psyche and wallet in the process.