Invest Smart: Pursuing Perfection – A Recipe for Financial Disaster

Invest Smart: Pursuing Perfection – A Recipe for Financial Disaster

One of the great perils of trading is false exactness. Trading is a fuzzy process—and I mean fuzzy in the best sense of the word. That is, as in fuzzy logic, in the willingness to accept the idea that things aren’t always quantifiable and to forge ahead anyway…. John Bollinger (creator of the Bollinger Bands)

Invest Smart: Focus on The Trend

Trading is not about perfection. It is about probability and progress. All charts, analyses (fundamental and technical) and trading plans are built on probabilities.
This is what happens with perfectionists. Perfectionists are made, not born. Demanding (and often well-meaning) parents teach us from an early age that we have to be the best in order to win their approval and the approval of others. Unfortunately, this is totally upside down. Perfectionists share a belief that absolute perfection is required in order to be accepted. The reality is that acceptance is not obtainable through performance or other external factors.

Perfection & Investing: What does this have to do with trading?

Why do so many traders strive for perfection? Why do so many traders miss trades, waiting for exactly the “right” entry, and then beat themselves up when the right time doesn’t come? Why do they then sit there, scratch their heads, and berate themselves? Why are so many traders trying to turn a game of probability into one of 100 per cent certainty?

The answer lies in one of the cardinal sins of trading: perfectionism. Perfectionism

can greatly help people in many professions but can be fatal to a trader. Perfectionists

trying to find the perfect approach go from one service to another, from one system to

another, looking for a way that they can be right all the time. They think, yes! This is it! It’s

this trading room, or that service, or these indicators.

Then, when a trade fails to go according to plan or some of the trades don’t work—there are

drawdowns! Wait. Something is wrong. How can it be that this particular method failed and

they actually had to take a loss? They try harder and look for an even better system, a more

expensive service, a new and improved guru, or some no-fail software so that they can

have only winning trades.

This is perfectionism in action. It leads to depression, depletion of psychic and physical energy,

and leaves the perfectionist to confront his/her basic and overriding fear—fear of failure. In the extreme, it leads to physical and mental illness, including addiction to prescription drugs, alcohol, sex or gambling. The fear of failure is simply overwhelming, and one turns to whatever works to medicate the pain. Not only does this type of irrational behaviour and belief undermine and demoralize a trader, but it takes away the enjoyment and fun of being in the markets.

If you trade with a perfectionist mentality, you are setting yourself up for failure, because it is a given that you will experience losses along the way. You must begin to think of trading as a game of probability. Your losses (which you hope will return to break even) will kill you. If you cannot take a loss when it is small (because of the need to be perfect), then you will watch that small loss grow into a larger loss, and enter a vicious cycle of more and more pain. Trading on hope does not work. The markets can remain irrational for a lot longer than you can remain solvent.

The object should be excellence in trading, not perfection. Moreover, it is essential to strive for excellence over a sustained period instead of expecting every trade to be excellent. This is a marathon, not a sprint.

Invest Smart: Cut Losses Early

The greatest traders know how to cut losses and let winning positions run. Perfectionists often do precisely the opposite. They get in at the wrong time, stay in too long, and then get out at the wrong time. Perfectionists are always striving and never arriving. The market will find the flaw in a perfectionist trader and exploit that flaw day after day. The market is your greatest teacher and your most demanding critic, so take this opportunity to learn about yourself and make yourself strong.

If you see this trait of perfectionism rearing its ugly head, it’s okay to get angry and yell or curse. Do whatever it takes to acknowledge it, and then find a way to fix it. Here are a few suggestions:

  • Set more achievable and realistic goals for your trading.
  • Try to appreciate and enjoy the process as well as the outcome.
  • Learn to think in probabilities and be comfortable with uncertainty
  • Remember that your self-worth does not fluctuate daily, depending on whether you win or lose that day.
  • Focus less on achievement and more on enjoyment.
  • Lighten up. Laugh more (especially at yourself).
  • Learn from your mistakes, forgive yourself and make peace with your past. Strive to be better, not perfect—just an amazing human work in progress.

Invest Smart: Trading  Should Be Fun & Not Tedious

Trading is serious, but it should be fun instead of something to approach with fear and dread.

If we were always to wait for the most favourable combination of circumstances, no endeavour would ever be undertaken. There can be no end without a beginning. There is no project in which everything fits into place perfectly, for chance plays a leading part in the affairs of all men.

Obedience to the rules does not ensure success, but success, on the other hand, furnishes a canon—a rule of conduct… Napoleon Bonaparte.

Copyright and Illustration Copyright:  Janice Dorn, M.D., PhD.  2002-2016  All Rights Reserved


Janice Dorn, M.D., PhD, received a PhD in Anatomy (Neuroanatomy) from the Albert Einstein College of Medicine in New York. She is certified by the American Board of Psychiatry and Neurology and the American Board of Addiction Medicine. Dr Janice Dorn has written over 1,000 articles on trading psychology and behavioural finance. Dr Dorn is dedicated to providing education and training about how the brain, psychology and emotions impact financial decision-making. Janice is an advocate for the elderly, a lifelong dancer and a pianist. Her website is:


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