Avoid the Trading Seesaw!

Have you ever experienced a performance seesaw? Trading seesaw is the cycle of successfully making money for a certain period of time, and then becoming overconfident and careless, which then leads to bad losses.

The “seesaw” is completed when the trader tries to get back “in the zone” by making the necessary effort to execute trades well.

Unlike a kid getting out of simple seesaw though, getting off the trading seesaw can be extremely difficult.

When you are “up” and are winning trades, you easily become wrapped up in your trading results. Your string of winning trades can make you overconfident, which can tempt you to start cutting corners and stop doing the processes that initially made you win.

Trading Seesaw

Once you have reached a very high level of success, you’ll probably fall back down to earth on your behind due to mistakes and maybe even a big loss. It is only in this “down” stage that you realize your mistakes and return to what you were doing previously that made you profitable.

Take this trader friend of mine named Rob (not his real name, of course). He has been live-trading for around 2 years, yet he has to end a year with a significant profit. During the first year, he was up by 0.50%. On his second year, he was down 0.25%. Needless to say, his performance has been less than stellar.

When I looked at his month-to-month performance, however, I saw that he would have 3 to 4-month winning streaks where he’d gain around 5% to 7%, followed up by 2 to 3 months of 6% to 10% losses.

This prompted me to ask him if he found something odd in his performance.

His response was surprising. He simply said that it was just how the cookie crumbled-sometimes he’d win, sometimes he’d lose. But I did not see it that way. I realized that he was stuck in a performance seesaw.

If you think you’re experiencing the same scenario I stated above, don’t fret.

One thing you can do to avoid the trading seesaw is to focus on the process. Some traders continually check their trading and psychological journals for signs that they might be deviating from their usual strategies. Others even score themselves on each trade to make sure their trading plans are being followed.

Another way to avoid the trading seesaw is to make sure that trading isn’t your only measure of your self-worth. Try to find a sense of achievement and satisfaction in your relationships, work, and other hobbies that you might have. This way your ego won’t be tied to your trading performance and you’ll be more emotionally resilient in winning and losing trades.

As I said last week, trading is a grind where focusing on the process is your best friend. Having winning or losing streaks shouldn’t hinder you from doing what works and improving what doesn’t work for your trades.

It takes effort, emotional resilience, and most of all, FOCUS, in order to avoid the trading seasaw and become a consistently profitable trader over time.

  • Murphinv

    Like, like, like, mega-like. Great post

  • lordpipi


  • JetClubPipper

    Good advice, “FOCUS” is right and in trading I believe the word takes on a whole new meaning since you pay a high price if you deviate from doing what works ! But as much as anybody would say: “why would I do that ?” Well, because in trading I don’t think it’s an exaggeration to say that it kind of needs to be hard wired into your brain… (maybe just speaking for myself huh.. 😉 But really, I think anybody would agree that trading can be very emotional and until we become fully “objective” there’s a lot of self-foot shooting going on… So my 0.02 cents is that I believe a trader would benefit thousandfold by developing his/her personal set of RULES that s/he’s come up with through trial and error over time. “These are MY RULES and what I do when this and this condition(s) present themselves during my trading session…” kind of thing. Get it printed in front of you and use it as a checklist YOU STICK TO but flexible enough that it can change with your new findings (of course..). This is why I see now how important it is to keep a trading log; I think over time you are able to identify recurrent problems, bad habits, reactive trading (emotional) and you can arrive at a set of rules that directly apply to your trading style. I know it has helped me ! 

  • wirabayu06

    Just this month (August 2012) all bout seesaw… Now i have experienced
    this feeling… Thank u Dr. Pipslow, now i know what seesaw really are..