Steering Clear of the Euphoria Trap
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How to avoid a false sense of security when it comes to winning it big
Having a trade that is very successful isn’t always all it’s cracked up to be.
The downside to hitting it big every so often is that it often puts you in a euphoric state of mind. This joy and confidence, while it sounds great on the surface, may actually make you overconfident towards your next trade.
Visions of Grandeur
When you have a successful trade or a sequence of good trades, you might be inclined to start reviving your dreams of having greater and faster success. You’ll instantly feel you have what it takes to go forward and make it big as a professional.
This over the moon mindset will put a lot of future stress on yourself in order to keep up with the success you just made.
The truth is, that for every sequence of success, there will be times where you won’t be on top. If you’re euphoric or building too much confidence due to past success, you could quickly fall into big-time disappointment.
Overconfidence is Highly Deceptive
Overconfidence due to past gains might soon lead you to make easier and less ideal entries into the market. When you’re riding high, you may have less consideration of all the information needed for your entry.
In instances like this, overconfidence leads to glaring mental blind spots when you’re not aware of all the hazards that are waiting out in front of you.
Don’t get us wrong though, successful trading is great and we should be happy and proud about it, but in order to maintain that success, we have to keep our awareness and not let the euphoria of success take over.
After a sequence of wins, we need to remind ourselves that we’re not here purely for success, but rather to do the job. When we do our job well enough, success is the byproduct.
We go to work every day to get better and constantly improve our trading.
Ways to Cope with the Negative Side of Success
Success is not the goal, rather it’s a byproduct of doing the right thing. Remember that even if you experience success and multiple winning sequences, you’re still dedicated and committed to doing your job well. Stay in the zone and don’t be too enamored with success.
Trading is always about highs and lows, winning and losing. You’ll have great times but you’ll also have bad times. A sequence of winners will always eventually lead to a sequence of losers.
It’s the cold reality of the market and the profession.
Another way to mentally prepare for potential euphoria is to not bet your future on periodical success. Otherwise, the fall will be hard and painful.
Stay humble and start from the hard, basic beginning. Even if you had a sequence of success in trade, don’t exaggerate with overconfidence. Don’t increase your position size just because you think it will lead to larger and larger profits.
After a winning streak, there will be some losers. Your portfolio should be protected from these negative events. To do so, manage risk as though you didn’t experience a winning sequence. Risk management shouldn’t change even though you had a strong winning streak.
Open a Smaller Position Size
It might help to open a lower sized trade after a big win. This will work to assure you that you’re not suffering from overconfidence or euphoria. If you do this as part of your trading plan, you’ll be happy with your success while staying humble and not taking extra risk.
This also protects you from the overall maintenance of your portfolio. Staying humble and not getting greedy for higher and faster profits, acts as a safety check for your hard-earned profits.
Try to limit showing off your success among your trading pals and community. Exceptional successful trading might put pressure on you from people who see your work. They’re not aware of your bad times and only see your good days. Don’t let yourself feel pressured from the community to perform at a level that you can’t always deliver.
Bread and butter trading means consistently taking money from the market. It’s not always the best or perfect trade, rather the consistent, reliable ones. Big ones come once in a while but our daily routine should be focused on making money from the market in a consistent way.
It’s not always going to be big and glamorous but it’s what makes this a career, not a lottery jackpot.
Stay Consistent, Stay Profitable
Your monthly income relies on the day to day, not the big winners. Big winners are a bonus and you should certainly enjoy them but they are outliers and should not be relied on as the centerpiece of your trading strategy. Build a consistent approach that can sustain you from month to month, year to year. Be happy when you hit it big but know that real success comes from the daily grind.
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