Trading has weaknesses, mainly three points: psychological structure, cognitive structure, and execution structure. These weaknesses constantly affect an individual's trading system. The weaknesses in trading go far beyond a lack of technical analysis; they are more profoundly rooted in human nature, cognition, and system execution.
To overcome them, it is also necessary to systematically reshape from multiple dimensions.
From the psychological, cognitive, and execution core dimensions, deeply analyzing the weaknesses of trading and ways to overcome them.
1. Psychological Dimension: Emotions are the greatest enemy of traders.
This is the most fundamental and common weakness in trading.
Main Weakness Manifestation:
1. Fear and Greed: Fear leads to premature exits and reluctance to enter; greed leads to overexposure and failure to stop losses.
2. Hope and Luck: 'Hoping' for the market to turn when at a loss, replacing discipline with a lucky mindset.
3. Loss Aversion: The pain of loss is felt far more intensely than the pleasure of profit, leading to holding onto losses and prematurely closing profits.
4. Revenge Trading: Eager to recover losses after a downturn, losing control of emotions, frequently violating rules and trading.
5. Overconfidence/Self-Doubt: Becoming overly confident after consecutive profits, taking large risks; self-doubt after consecutive losses, missing opportunities.
Ways to Overcome:
Establish and believe in a trading system: Shift the decision-making process from subjective judgment to objective system signals. Your job is not to predict, but to execute.
Systematization and Checklists: Develop detailed trading plans (entry, position, stop-loss, targets, exit conditions), executing each trade as strictly as a pilot checking a pre-flight checklist.
Mindfulness and Emotional Diary: Record emotional states during each trade. Through practices like meditation, cultivate a 'bystander' perspective on emotions, enabling recognition and pause when emotions arise.
Risk management is the ultimate safety valve: Control single losses strictly within 1%-2% of total capital. When you cannot feel the pain of a single loss, emotions are hard to dominate you.
Regular Pauses and Breaks: In times of consecutive losses or unstable mindset, forcibly exit to take a break, breaking the emotional spiral.
2. Cognitive Dimension: The deviation between market perception and self-awareness
An incorrect cognitive framework can lead to continuous poor decision-making.
Main Weakness Manifestation:
1. Outcome Preference: Evaluating trade quality solely based on trading results (profit and loss), rather than the rationality of the decision-making process. A bad profit can be more harmful than a reasonable loss.
2. Recent Preference: Overemphasizing recent market performance, believing recent patterns will continue, leading to chasing highs and cutting losses.
3. Anchoring Effect: Using entry costs or previous highs and lows as 'anchors', all decisions revolve around this unreasonable reference point (e.g., 'I'll sell when I break even').
4. Narrative Fallacy: Forcing reasonable explanations and stories onto random market fluctuations, believing them without doubt.
5. Confirmation Bias: Only seeking information that supports one's viewpoint, ignoring contradictory evidence.
Ways to Overcome:
Establish Probability Thinking: Accept that no trade is 100% certain. Your system is a strategy with a 'positive expected value' advantage in long-term statistics, focusing on long-term trends rather than individual results.
Rule-based Review: During the review, make 'Did this trade follow my system rules?' the primary evaluation criterion, followed by profit and loss.
Diverse Information Sources: Actively and deliberately seek contrary views and risk factors to your current judgments, conducting stress tests.
Learn Behavioral Finance: Systematically understand cognitive biases and know how the collective behavior of the market is driven by these biases, maintaining awareness.
Write Trading Logs: Not only record trades but also document the thought logic and market environment at the time. Regularly review to identify recurring cognitive error patterns.
3. Execution and System Dimension: Lack of Consistency, Discipline, and Adaptability
This is the ultimate challenge of implementing ideas.
Main Weakness Manifestation:
1. Lack of Consistency: Constantly jumping between strategies, chasing the 'holy grail', unable to accumulate any long-term data or experience from any strategy.
2. Discipline Erosion: The split between 'knowing' and 'doing', knowing that one should stop losses but not acting, failing to execute planned trades.
3. Over-optimization: Fitting perfect parameters on historical data, leading to system failure in the future (curve fitting).
4. Ignoring Capital Management: Positions fluctuating wildly, or using a fatal 'Martingale' style of increasing positions, a single black swan can lead to liquidation.
5. Inability to Adapt to Market State Changes: The market has different states like trends and oscillations, using a single strategy to respond to all markets.
Ways to Overcome:
Build and adhere to your own system: The system must comprehensively include: market philosophy (trend/oscillation?), entry signals, risk management (position and stop-loss), and exit rules. Validate its logic and statistical advantage with at least one year of historical data or simulated trades.
View discipline as the highest skill: Train system execution into muscle memory through simulated training and small real trades. Discipline is not a character trait, but a skill that can be practiced.
Capital management is the core of the system: Use mathematically validated strategies (like variations of the Kelly formula, fixed ratio risk, etc.) to ensure the account can survive during adverse periods.
Regular Assessment and Limited Adjustments: Every quarter or half year, make minor adjustments to the system based on statistical data from a period (e.g., the last 100 trades) rather than a complete overhaul. Distinguish whether it is a system failure or a normal 'profit drawdown period'.
Define Market States and Response Strategies: Clearly identify which main strategy suits which market (e.g., trend following) and define how to recognize market states. A second set of strategies for oscillating markets can be equipped, or reduce trading and positions in markets where the main strategy is not applicable.
Transcend Weaknesses: From Trader to Risk Manager
The essence of trading is not prediction, but risk management. The highest state of overcoming weaknesses is to complete the transformation of identity:
1. From 'I Am Right' to 'How Do I Deal with Mistakes': Prepare contingency plans for various possibilities in advance.
2. From 'Seeking Excitement' to 'Seeking Boredom': The best trades are executed strictly according to plan, with a bland process.
3. From 'Individual Hero' to 'System CEO': You are the manager of your trading system, responsible for overseeing the system's operation rather than making every subjective judgment yourself.
Final Recommendations:
Integrate these overcoming methods into a personal trading cultivation system:
Daily: Emotional records, planning.
After each trade: Fill out standardized logs.
Weekly: Compile weekly statistics, check rule execution rates.
Monthly/Quarterly: Comprehensive review of performance reports, assessing system status, and making limited optimizations.
The weaknesses in trading are rooted in human nature, so overcoming them is a never-ending practice. The real opponent is never the market, but oneself in the mirror. The key to success lies not in eliminating all weaknesses, but in establishing a strong system, processes, and mindset, allowing you to survive and move forward steadily when weaknesses are revealed.
