Don’t rationalize. Ever.

Don’t rationalize. Ever.

The story of the squirrel and the bus

Have you ever seen a squirrel playing chicken with a bus?

Actually, the squirrel isn’t playing chicken. It’s just trying to cross the street without turning into a squirrel-flavored spot on the asphalt.

This is how it usually plays out.

The squirrel starts crossing. It sees the bus coming and then its self-preservation instinct kicks in and it turns around and heads back to the safety of the pavement.

Then the weird part happens.

Nine times out of ten, the squirrel turns right back around again and leaps into traffic.

And gets flattened.

You might think that decades of getting pulverized by buses would have taught the city squirrel something. But it just isn’t so.

Whatever life-sustaining instinct is telling the squirrel to run away from the bus is always drowned out by a loud, last-minute thought telling it: “Go for it, little guy! You might still be able to make it!”

And that’s what hurls the squirrel back at the bus like a furry, half-pound kamikaze.


Better never than late

Every time you plough into a bad trade because you saw a golden setup, waited a beat and missed your chance, and then dove back in late, you’re that squirrel.

Because when you jump into a trade late, you’re almost always exposing yourself to unnecessary risk. And once you’re reckless with your risk, everything else about a trade will likely go downhill from there. Position size, profit target. Everything will be out of sync.

But you’re a trader, not a squirrel. You can tell an impulse from a thought. So how does it happen?


You convince yourself that you’re thinking rationally, when all you’re doing is acting on impulse. 

Rationalizing impulses is a dangerous game, and it will almost always lead to a bunch of other foolish behaviors that can derail your trading career if you don’t catch them early.

Here are three of the most common rationalizations to look out for, how to recognize them and what to do about them.


You convinced yourself that you were thinking rationally, when all you were doing was acting on impulse.



1. You’re never too good to follow a system

If there’s one thing we hope you already know, it’s this: Successful traders don’t improvise. They’re not the kind of guys who stand before an audience and try out random jokes until they either score a laugh or get booed off the stage like Arthur Fleck.

Badass career traders who live off their trades are there because they’ve found a formula that works. Consistently.

We’re not talking about a trade here and a trade there either. Career traders perfect their edge over hundreds, maybe thousands, of trades in every market condition imaginable. And then they stick to them, no matter what second thoughts they might have.

Where traders get into trouble is when they believe that what makes them great is just their greatness, and not their discipline and decision to invest in a system.

That’s a dangerous rationalization.

You may be able to get by thinking this way for a while. But you won’t last long.

If you have no plan to guide your trades and no stats confirming your edge, you’re just roadkill.


Where traders get into trouble is when they believe that what makes them great is just their greatness, and not their discipline and decision to invest in a system.



2. It’s never an “I can trade what I want” day

Even if you have a plan that’s starting to feel good for you, sometimes the market can make you feel like deviating.

Let’s say it’s been a good day and you’ve already made a few good trades and you start feeling like you own the place.

Two things could happen at that point. You might get spooked and pull back because you’re afraid if you run your “luck” too hard, you’ll go bust. Or you may start thinking in the opposite direction, and making more trades than you normally would.

In either case, you’re in trouble—because it’s not about your plan anymore. It’s about your wallet. You’ve become greedy.

Don’t ever go there. Trading is never about questioning the market. That’s just a rationalization. Trading is about acknowledging that you’ll never out-think market conditions, and sticking to your trading system.

Unless you like the taste of bus wheels. In which case, go for it.


3. Staying in or getting out is never up to you

Do you know your Descartes? I think therefore I am?

Well, here’s our version of that: I trade, therefore I have an exit point.

If you can get into a trade but can’t get back out, your strategy is like Jason Momoa without a beard, i.e. half-complete. And you’ve also missed the most important part of taking the time to build a winning strategy: using the strategy.

Because, as you probably remember, knowing when not to cross the street is just as important as knowing when to go for it.

The problem is, knowing which moment is which isn’t always easy.


Trading is about acknowledging that you’ll never out-think market conditions, and sticking to your trading system.


If you’re losing, it’s only natural to think of reasons to stay in. Rationalizations come in all sorts of flavors. Your inner voice may tell you you should have used a bigger stop loss, which makes it easier to feel like increasing yours in the heat of the moment is an actual plan.

The real problem isn’t the idea that your trade could have been better, but that you can improve your game by changing your strategy midway through a trade.

The same goes for when you’re winning. You might feel like you’ve made enough money and that getting out before the tide turns makes better sense. If you’re new to trading, this happens a lot. After all, greed is bad, right?

No, not always. If you decide to trade according to your minute-to-minute gut feelings, a few months might go by when you’ve scored a lot but your profits are tiny. When your first big loss rolls in, you won’t have the money in your account to cover it and you’ll get wiped out.

Our solution?

Don’t ever decide whether to get in or get out of trade. Let your plan decide for you.


The only way to ditch your rationalizations for good

We used to say: “There’s no easy way out of rationalizations.” Because there wasn’t. Weaning yourself off your trade-destroying impulses was a matter of hard discipline. Traders that could do it went on to be successful. The rest went down with the ship.

But that’s not true anymore. Today, we can honestly say there is an easy way, and it’s in everyone’s grasp: it requires no budget, no coding experience, and hardly any time to get the hang of.

Convert to algos.

If this sounds a little like the moment in the DC movie when the superhero gets all dressed up in special armor to beat the crap out of a supervillain, it is.

Algotrading is a little like impulse-proof trading armor. Because once you set up your algos, you won’t have to think about your strategy again while you’re trading. And that means your biggest enemy—your own rationalizations—will never enter the equation.

Even better, all that time you used to spend second-guessing and tweaking your plan mid-trade—you can use that to do what really matters to you.

Because, really, whatever’s waiting on the other side of the street when the bus is gone is always a hell of a lot better than being flattened by its front tire.



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