I like to refer to making money trading as the hardest way to make easy money. It proves to be quite an elusive goal for many traders for reasons beyond their conscious control. Especially traders with ADHD struggle with self-control and emotional self-regulation, which can have disastrous effects when trading a live account. Maybe you find yourself in a similar situation after years of trying to consistently pull money from the markets:
- you have invested a serious amount of money in trading education, strategies, and tools,
- you have read all the books you’re supposed to read on trading psychology and cognitive biases,
- you have a solid trading plan with reasonable risk management rules,
- you have a strategy that seems to have an edge on paper and positive expectancy in simulated trading.
But your actual results are absolutely dreadful. What gives?
For some reason you are failing to bridge the gap between the knowledge you have acquired over the years and actually performing the necessary tasks to achieve your trading goals. Interestingly enough, when children have such problems, they are quickly diagnosed with attention deficit hyperactivity disorder (ADHD). I’m not saying here that all traders with erratic equity curves suffer from adult ADHD that possibly remained undetected from childhood to adulthood. But since people with ADHD tend to seek out trading for thrill-seeking reasons to break chronic boredom, it is a highly relevant topic. There are certain common symptoms that may negatively affect trading performance and traders need to be aware of them to fix their trading by planning, monitoring, and reflecting on their actions.
Traders With ADHD Struggle With Executive Function
Traders with ADHD struggle with executive function (EF). Executive function skills are critical for risk management highlighted by the following three core EF skills that are responsible for attention and self-regulation:
- Working memory: ability to keep information in mind and use it in some way. What was the reason for entering a trade and is it still valid?
- Flexible thinking: ability to look at something from more than one perspective and integrate new (possibly conflicting) order flow information into the decision-making process to avoid confirmation bias and cognitive inertia.
- Self-control: ability to ignore distractions and resist temptation. Discretionary traders need to be able to regulate and control emotional responses to adverse events that could lead to revenge trading or excessive risk-taking and overcome chronic boredom that could lead to impulsive trading decisions.
Executive function skills in trading
Executive function is important in performing a multitude of skills that are relevant in trading. Traders with ADHD struggle with self-control due to a lack of the following skills, which they need to work on to improve their trading performance by counteracting ADHD symptoms.
Organizing and planning
Define structured processes and develop detailed trading plan.
“Luck is what happens when preparation meets opportunity.” – Seneca
Remove distractions from your environment and commit to your goal.
“When you pay attention to boredom it gets unbelievably interesting.” – Jon Kabat-Zinn
Initiating tasks and staying focused on them
Enter one trade at a time and manage position/risk until trade is closed (mono-tasking).
“To be everywhere is to be nowhere.” – Seneca
Accept the uncertainty of the next trade’s outcome to control anxiety.
“Today I escaped anxiety. Or no, I discarded it, because it was within me, in my own perceptions – not outside.” – Marcus Aurelius
Take an outside observer’s perspective to evaluate your reactions to unfavorable events.
“Is this something that is, or is not, in my control?” – Epictetus
During the day, reflect on your stress response in situations where processes broke down and trading rules were violated. At the end of the trading day you can reflect on questions such as “what did I do well today?” and “what could I do better and how?”.
“By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest.” – Confucius
Follow the processes defined in your trading plan and go through the reflection process quickly and efficiently to move on to the next trade.
8 Ways to Improve Self-Regulation
- Leading and living with integrity: be a good role model, practicing what you preach, creating trusting environments, and living in alignment with your values
- Being open to change: challenge yourself to deal with change in a straightforward and positive manner and working to improve your ability to adapt to different situations while staying positive
- Identifying your triggers: cultivating a sense of self-awareness that will help you learn what your strengths and weaknesses are and what can trigger you into a difficult state of mind
- Practicing self-discipline: commit to taking initiative and staying persistent in working toward your trading goals, even when it’s the last thing you feel like doing
- Re-framing negative thoughts: work on your ability to take a step back from your own thoughts and feelings, analyze them, and come up with positive alternative thoughts
- Keeping calm under pressure: keep your cool by removing yourself from the situation for the short-term—whether mentally or physically—and using relaxation techniques like deep breathing
- Considering the consequences: stop and think about the consequences of giving in to “undesired” behavior (e.g., what happened in the past and what is likely to happen now, what are the longer-term consequences)
- Believing in yourself: boost your self-efficacy by working on your self-confidence, focus on the experiences in your life when you succeeded and keep your mistakes in perspective. Choose to believe in your own abilities and surround yourself with like-minded, positive, and supportive people.
Accepting the fact that your trading is affected by signs of ADHD is the first step to develop effective self-regulation strategies. At the core of this process lies planning, monitoring, and reflecting on your actions. Automating error-prone processes is also an effective way to tackle self-control issues. Using simple risk management techniques such as placing automatic stop-loss orders, for example, removes the anxiety caused by the uncertainty of the size of trading losses.
We have no control over the outcome of the next trade, but we can learn how to control our reaction to the outcome by accepting the outcome before entering the trade. Ultimately, mastering the above mentioned skills can help traders bridge the gap between theoretical knowledge and practical performance to achieve the desired trading success.